Municipal bonds (munis) are debt securities issued by states, cities, counties and other entities to finance public purpose projects and infrastructure such as bridges, schools, roads, hospitals, airports and water systems. Investors in municipal bonds receive regular interest payments and repayment of principal at maturity of the bond. Municipal bonds provide income from interest payments that are usually exempt from federal income tax and, in some cases, state and local taxes.

Many investors use municipal bonds to generate tax-exempt income while helping to diversify investment portfolios and smooth out overall portfolio volatility^1,4. When comparing municipals to corporate bonds, municipals have experienced historically lower default rate².

There is also a segment within the overall municipal bond market for taxable municipal bonds, and these investments are generally used by institutional investors outside the U.S. who are seeking ways to generate yield while diversifying risk³ and maintaining higher quality within their overall portfolio.

Since each investor’s tax situation is different, it is important to consult with a financial and tax professional.

Both approaches invest in municipal bonds for tax-advantaged income, but they differ in tax benefits and diversification.

• Single-state municipal bonds offer a key advantage for residents of income-tax states: interest can be exempt from both federal and state tax, boosting after-tax yield for investors in higher tax brackets.
• National municipal bonds spread holdings across many states, offering broader diversification by geography, sector, and credit profile. Income stays exempt from federal tax, but interest from out-of-state bonds is typically still subject to state tax.

Choosing between the two often depends on residency, tax bracket, and goals.  A blended approach, combining single-state and national municipal bonds, may capture benefits from both.

The municipal bond market is large, fragmented and highly diverse, spanning tens of thousands of issuers across different states, sectors and credit profiles. Advisors and investors can benefit from working with firms that have deep research capabilities, established issuer relationships and broad market access, as this can help identify attractive opportunities, manage credit risk and navigate a market where liquidity and pricing can vary significantly by bond. A firm with breadth and depth across investment vehicles such as SMAs, mutual funds and closed end funds, can also help closely match the right structure to an investor's specific goals, tax situation and account size.

Stability through market cycles: Since 1898, Nuveen has been committed to providing reliable and durable income for investors, while helping minimize investors’ tax burden.

Access and client experience: Clients gain direct access to our investment leaders and teams, powered by one of the largest platforms for tax-aware customized solutions with a focus on optimizing after-tax outcomes.

Research advantage: Specialized credit sector analysts research nearly every bond that comes to market, identifying opportunities and risks others might miss in pursuit of attractive risk-adjusted returns.

Separately managed accounts (SMAs) offer a way for individual investors to be more closely aligned with the investment team responsible for their accounts. Individual investors have direct ownership over the investments, allowing them to customize their portfolio and invest in strategies that align to their personal goals.

SMAs are well-suited for clients with larger account sizes that are seeking investment flexibility, tax efficiency and transparency.

Mutual funds pool money from many investors to purchase a diversified portfolio of municipal bonds managed by a professional investment team. Investors buy shares of the fund rather than owning the underlying bonds directly, and the value of those shares is based on the fund's net asset value (NAV) calculated once per day.

Mutual funds are well suited for investors seeking a diversified, professionally managed municipal bond portfolio with a lower minimum investment requirement than other structures like SMAs. They can be a good fit for investors who prioritize simplicity, daily liquidity and broad diversification potential over the customization or direct ownership benefits offered by SMAs.

Closed-end funds are professionally managed investment vehicles that raise a fixed amount of capital through an initial public offering and then trade on an exchange, similar to a stock. Unlike mutual funds, closed-end funds do not continuously issue or redeem shares; instead, shares trade at market prices that can differ from the fund's underlying net asset value. Many closed-end funds may also have the ability to use leverage, which can enhance income potential but also may increase risk.

Closed-end funds tend to appeal to investors seeking higher income potential and are comfortable with the added risks associated with leverage and share prices that may trade at a premium or discount to net asset value. They can be a good fit for investors looking for exchange-traded convenience combined with active professional management of a municipal bond portfolio.

All three vehicles offer investors access to professionally managed municipal bond portfolios, but they differ in structure, flexibility and how investors interact with them:

Separately managed accounts (SMAs) provide direct ownership of the underlying bonds, allowing for greater customization, tax planning opportunities and transparency into individual holdings and transactions. They typically require a higher minimum investment and are not exchange-traded.

Mutual funds offer a lower minimum investment requirement and daily liquidity at net asset value, making them accessible to a broader range of investors. Investors own shares of the fund rather than the underlying bonds directly, which means less ability to customize holdings.

Closed-end funds are exchange-traded with intra-day pricing and often use leverage to help enhance income potential. Their share prices can trade at a premium or discount to net asset value, and they generally offer less tax-planning flexibility and portfolio transparency than SMAs.