Tax-Exempt Municipal Debt Funds
About Tax-Exempt Municipal Debt
Tax-exempt municipal bonds are debt issued by a state, city, or other municipality
for general governmental needs or to finance special projects. These municipal bonds pay
interest that is free from regular federal income tax, and state-specific bonds
can provide residents of those states with income free from state and, in some cases,
local income taxes as well.* Tax-exempt municipal bonds can be an advantageous alternative
to taxable investments, particularly for investors in higher tax brackets. To make
a fair comparison between a tax-free investment like a municipal bond and a taxable
investment, one should adjust the tax-free investment's yield to account for money
saved in regular federal, and sometimes state, income tax.
* Interest on out-of-state bonds and dividends paid by national funds may be subject
to state and local taxes. Income may also be subject to the
Alternative Minimum Tax.
About Nuveen Tax-Exempt Municipal Debt Closed-End Funds
Nuveen offers over 25 national tax-exempt municipal bond closed-end funds, and over
70 state-specific funds. Nuveen Municipal Closed-End Funds can potentially help
you balance your desire for income and growth by:
- Meeting current expenses with monthly tax-free income;
- Potentially realizing attractive, long-term, after-tax total returns;
- Diversifying your income portfolio;
- Reducing the amount of your investment income subject to taxes.
The Tax-Free Advantage
|
25% |
6.00% |
6.67% |
7.33% |
8.00% |
|
28% |
6.25% |
6.94% |
7.64% |
8.33% |
|
33% |
6.72% |
7.46% |
8.21% |
8.96% |
|
35% |
6.92% |
7.69% |
8.46% |
9.23% |
You can see you would need to earn much more from a taxable investment to match
a municipal bond's after-tax yield. For instance, if your fund is yielding 5.00%
tax-free and your tax rate is 35%, you would need a taxable investment to yield
7.69% to match the same after-tax cash flow. (This chart is for illustrative purposes
only and is not intended to reflect past or predict future performance for any particular
investment.)
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Who Might Be Interested in Municipal Bond Closed-End Funds?
The features and investment objectives of these funds might be especially appealing
to investors seeking:
- Potential for attractive, monthly tax-free income
- Diversification of a portfolio otherwise comprised of taxable fixed-income and equity
securities
- Reduction of the amount of investment income subject to taxes.
What are potential risks of municipal bonds?
- Municipal bond fund income may be subject to state and local income taxes and the
alternative minimum tax. Capital gains, if any, will be subject to capital gains
tax.
- Municipal bonds are subject to interest rate risk, or the risk that the bonds will
decline in value because of changes in market interest rates.
- Municipal bonds are also subject to call risk, and credit risk.
