Tax-free mutual funds are one of the most popular types of investments. Rather than invest only your money, you can benefit from power in numbers while saving on taxes. Are these mutual funds the right choice for you? Take our quiz to find out what you know about investing in tax-free mutual funds.
Mutual funds invest many people's money together, which means they have greater investing power, but far less risk.
About 80 percent of American investors have some money tied up in mutual funds, making these funds one of the most popular ways to invest.
The term diversification refers to investing in a broad range of stocks, rather than just one or two popular ones. The idea is that diversification reduces risk.
Trusts of this sort have been part of the American investment world since the late 1890s.
The term liquidity refers to the degree to which you can convert an investment into actual money without it losing value.
There is a longstanding investment idea of risk versus reward; the higher the risk, the higher the potential reward. Mutual funds are a relatively low-risk investment, which means they have a lower rate of return on investment.
As of 2009 there were more than 8,000 mutual funds in the United States.
For a mutual fund to qualify for tax-free status it may only invest in tax-exempt municipal bonds.
When you purchase a bond you are basically loaning that amount of money to an organization. The bond matures at a set date, and until then the company pays you regular interest payments.
Municipal bonds are non-federal government bonds. They are issued by state and local government organizations in need of a financial boost.
As of 2008, municipal bonds made up one quarter of all mutual fund bond assets.
If you purchase an individual bond, you must wait for it to mature before cashing it. A bond fund can be cashed at anytime; you will receive the current per share value of the fund.
Municipal bonds are issued by a government body, and are financially backed by that body. When you invest in a state-run water facility, your investment is backed by that state.
The profit you make from investing in a mutual fund may be subject to capital gains taxes, even if you invested in a tax-free fund.
A prospectus is a detailed overview of an investment opportunity. A mutual fund prospectus will include details about its history, management, services, and other related details.