How To Buy Short Term Municipal Bonds ?
Short term municipal bonds usually have a maturity period of 3.5 years. This means that these bonds are slightly longer term compared to the really short term bond, which are also known as ultra-short bonds. |
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Because of their maturity period, short term municipal bonds are affected more by the fluctuations in the interest rate compared to ultra-short bonds. This means that these securities actually gain a lot more compared to ultra-short bonds when the interest rate falls.
Short term municipal bonds are ideal for investors who are looking to save money to buy a home. They are also perfect for people who come under the high income tax bracket. Interest payments made by municipal bonds are exempt from federal income tax.
So, how can an investor buy short term municipal bonds if he wants to? Basically the investor has two options in front of him. He can buy the bond directly at the time of issuance or he can buy them from the secondary market.
Usually when a person buys the short term municipal bond from the secondary market, he will be buying it from the firm that owns the bond. For example, if an investor buys the bond from a dealer, the dealer would first buy it and then sell it to the investor. An investor does not have to pay commission when purchasing municipal bonds. The dealer invariably adds a mark up to the bond and this ensures that he receives his payment.
The minimum amount to purchase short term municipal bond or any other type of municipal bond is $5,000 of par value. So, investors should have sufficient money to make the purchase.
Unlike stocks, there is no central place to buy and sell bonds. That is why an investor has to buy the short term municipal bonds from a dealer. In the US, there are more than 2,700 registered dealers and this makes the actual purchasing rather easy.
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