What is the main purpose of municipal bonds?

The main purpose of municipal bonds is to raise funds for public projects. These bonds are issued by states, cities, or other governmental entities and are primarily used to finance infrastructure improvements such as schools, highways, bridges, and hospitals. Investors in municipal bonds effectively lend money to the issuing municipality, which, in turn, uses the funds to complete these critical public projects that aim to improve the community's overall quality of life.

Municipal bonds are an important financial instrument for local and state governments because they provide a relatively low-cost way to obtain necessary funding without placing an immediate burden on the local tax base. The interest earned on most municipal bonds is often exempt from federal income tax, and sometimes also from state and local taxes, making them an attractive investment option for individuals seeking to invest in public service initiatives while receiving tax advantages.