Easy-to-use. ETFs provide deep liquidity and show heavy trading volume, which allow investors to quickly and efficiently execute trades on the open market. With muni ETFs, investors can track broad muni markets through a single trade, like any company share on the stock exchange.
Fixed-income. Muni ETFs, like municipal bonds, provide a steady stream of income, with some paying out monthly distributions.
Tax efficient. Traditional municipal bond mutual funds may incur capital gains distributions. However, ETFs typically don’t incur capital gains distributions because of the way they redeem shares in kind – ETFs don’t sell off positions but usually swap securities for other securities. It should be noted that capital gains distributions can occur in ETFs but are typically less frequent.
Customization. Muni ETFs come in a variety of flavors. Broad muni ETFs help diversify. State-specific ETFs provide targeted exposure and potentially allow some investors to reap state tax benefits. Varying durations allow investors to track munis across the yield curve.
For more information on munis, visit our municipal bonds category.
Max Chen contributed to this article.