Definition of Municipal Bonds ETFs
During these economical times, investors need to find new, cost effective ways to make gains in the stock market. Exchange-traded funds (ETFs) are a basket of stocks or bonds, which offer flexibility and low cost that most mutual funds cannot provide.
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ETF Identification
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An exchange-traded fund can be bought and sold like a stock during the market's open hours. They offer diversification at low cost. ETFs are usually not actively managed, which lowers the cost of holding the ETF. However, the ETF price can fluctuate just like a stock would.
Municiple Bond Identification
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Municipal bonds are issued by a city, state, or government in order to raise capital. The yield on these bonds is usually lower than treasury or corporate bonds with similar maturities. Municipal bonds are more safe than corporate bonds, because it is unlikely that the municipal bond issuer will go bankrupt. A yield is the annual rate of return on an investment that is expressed as a percentage. Municipal bonds are also called munis. Municiple bonds and ETFs are tax-exempt.
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Function
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The function of a municipal bond ETF is to offer a diverse offering of various municipal bonds under a single ETF. They are also low cost. A $5,000 minimum investment is required to purchase bonds through brokers. Be aware of the bonds' credit ratings. Credit ratings ensure the safety of the bond. Generally, the ratings range from AAA (the least risk) to D (highest risk). Anything C or lower indicates a junk bond.
Insight
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You can view various municipal bond ETFs through tools offered by Scottrade or Sharebuilder. They breakdown important factors of each ETF and can offer valuable information (most of it for free).
Check out:
http://research.scottrade.com/public/etf/overview/overview.asp
http://www.sharebuilder.com/sharebuilder/Research/ExchangeTradedFunds.aspxBe sure that you look under fixed income ETFs.
Warning
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Please consult your financial adviser or planner. All investments are not for everyone nor are results typical. Every investment offers risk that can be negative to the outlook of one's financial health. The above ETF's were used as examples and are not suggestions.
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