Municipal Bond Forum
Muni bond funds vs. individual bonds
Q
What are the pros and cons of muni investment using mutual funds vs. individual issues?
A
James A. Klotz responds:
We invariably prefer individual bonds over municipal bond funds if an investor has the wherewithal to provide adequate diversification.
A bond fund has no maturity date, which means there is no promise to return principal as there is with individual bonds.
Individual bonds have a fixed income rate, which is unaffected by declining interest rates.
Open end muni funds can reduce dividend payments in a declining interest rate environment.
Additionally, individual bonds have no ongoing fees, as do most bond funds.
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