What MUB actually is

MUB holds municipal bonds, which are loans to US states, cities, school districts and public agencies. The interest on most of them is exempt from federal income tax, which is the main reason people buy them.

What is inside

Thousands of bonds issued for schools, roads, hospitals and utilities, mostly investment grade. Yields look lower than on corporate bonds, but the tax benefit can make them competitive for investors in higher tax brackets.

Distributions

MUB pays monthly. Most of the income is free of federal income tax, though some may be subject to the alternative minimum tax, or to state tax, and any capital gains are taxable. Check the tax details for your situation.

What to keep in mind

  • Interest-rate risk. Prices fall when rates rise.
  • Credit risk. Some local governments struggle financially.
  • Little value in tax-advantaged accounts. The tax benefit is wasted there.

Quick take

MUB is a tax-efficient bond fund for taxable accounts, with the usual rate sensitivity.