Municipal Bond Fund is a mutual fund that invests in a portfolio of municipal debt in an effort to produce income which is free from federal income taxes for its investors.
In general muni bonds provide investors with tax relief, in that the interest is free from federal taxation. When an investor purchases a muni bond fund they receive dividends that are federally tax free. It is important to note that there can be a taxable event, even if the bond fund is "tax free". If the fund makes a capital gain distribution to its investors, that distribution triggers a taxable event for the investor.
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