What are tax-free municipal bonds?
Municipal bonds are debt securities issued by state and local governments to raise money for important public projects such as schools, sewers, roads, and other infrastructure. The interest paid by tax-free municipal bonds is free from federal taxes and may in some cases also be free from state and local taxes.
Why should I invest in a Dupree fund vs. buying an individual bond?
Individual bonds can be attractive to some individual investors, but there are drawbacks to consider. Purchasing individual municipal bonds involves significant transaction costs and requires investors to do their own research and continually monitor their bond holdings. On the other hand, municipal bond funds offer investors the ability to purchase municipal bonds with lower transaction costs, while also offering the benefit of ongoing professional portfolio management. Additionally, municipal bond funds may offer greater diversification benefits than individual municipal bond portfolios.
Each of our municipal bond funds holds a basket of investment grade municipal bonds with various coupon structures and maturities. The municipal bonds held in our funds are all carefully vetted by our municipal bond professionals. Shareholders benefit from daily liquidity at Net Asset Value (NAV) so investors can buy and sell shares without incurring any commissions, sales loads, or transaction fees.
Investors in Dupree Mutual Funds own shares in the fund in which they invest and receive a proportional share of the interest income which accrues on a daily basis. Dividends for all of our state-specific municipal bond funds are distributed on a quarterly basis.
Why should I buy a state-specific municipal bond fund vs. a national municipal bond fund?
Dupree Mutual Funds offers tax-exempt municipal bond funds in five (5) states: Alabama, Kentucky, Mississippi, North Carolina, and Tennessee.
Alternatively, national funds buy municipal bonds from many different states, often including bonds sold by the largest issuers such as California, New York, and Texas. National funds also frequently purchase Puerto Rican and U.S. Territory bonds which can be riskier. Shareholders in states which have a state income tax may be required to pay state tax on some or all of the dividend income distributed from a national municipal bond fund. Finally, national municipal bond funds often hold bonds which are subject to the Alternative Minimum Tax (AMT).
Is an investment in a fund 100% tax-free?
Dupree Mutual Funds offer dividend income free from federal and state income taxes (and AMT) in the states corresponding to each fund.
Residents of states other than the state “named” in the title of the fund (for example, an Ohio shareholder buying shares of the Kentucky Tax-Free Income Series) still enjoy income free from federal income tax and AMT, but their income may be taxed at the state level. Residents of states such as Florida (without a state personal income tax) enjoy fully tax-free dividends for all of our municipal bond mutual funds. A table of the states in which Dupree Mutual Funds are offered for sale is available here.
There are certain municipal bonds (typically known as private activity bonds) that offer income free from federal and state income tax, but which are subject to the AMT. By prospectus, our funds do not buy any AMT bonds for our municipal bond portfolios. Dupree’s dividend income is 100% AMT free.
Why is tax-equivalent yield important to me?
Tax-equivalent yield is an important concept for tax-free bond holders. Comparing yields on taxable bonds to tax-free municipal bonds is not an “apples to apples” comparison. For example, a taxable bond yielding 5.5% might seem like a better deal than a tax-free municipal bond yielding 4%. However, if your combined state and federal marginal tax rate is 30%, then the tax equivalent yield of the municipal bond is actually 4% /.7 = 5.71%. This means that you would have to buy a taxable bond yielding 5.71% to earn as much after-tax income as a tax-free bond yielding 4%, all other things being equal. Investors must carefully evaluate their own tax situation and other factors to determine whether or not tax-free bond funds make sense for them.
How often do the funds pay dividends?
Our five state municipal bond funds distribute dividends quarterly, while the Intermediate Government Bond Series and Taxable Bond Series distribute their dividends monthly. Investors can either receive their dividends in cash or they can elect to reinvest their dividends.
One of the advantages of a municipal bond mutual fund is that you don’t have to wait for your bonds to make their “coupon payments” to get your income. We know how much interest accrues each day on every bond we hold, and we use this information each day to calculate a “dividend factor,” which is the amount of dividend income that accrues on each share of the fund each day. What this means is that no matter when you buy shares of our funds, you immediately start earning interest on shares you own. If you sell shares of the fund at times other than the end of month or end of quarter, you are paid the exact amount of dividend income you have accrued – there’s never any reason to wait to make a transaction until a certain date to ensure you get the dividend income you’re entitled to receive.
How long has Dupree Mutual Funds been around?
Dupree Mutual Funds were first offered to investors in 1979. The Kentucky Tax-Free Income Series is the third-oldest single-state municipal bond fund in the country. See our history to learn more.
Will I be assigned a specific account representative?
We have full-time registered representatives who are the primary point of contact for our shareholders. Our registered representatives are ready to answer all of your questions. Our representatives are 100% salaried (no commissions) to help ensure they answer your questions in an objective way. We do not assign specific accounts to account representatives–if you call during business hours, you’ll always get to talk to a qualified individual about your account.
In the current environment, how do I know my money is safe with you?
It’s important to note that our mutual funds are not bank accounts or money market funds, and the share price does fluctuate on a daily basis (in other words, your principal is not guaranteed as with an FDIC-insured bank account). However, the goal with all our funds is to maximize income without incurring undue risk to principal. Please see our prospectus (available here or call 1-800-866-0614 to request a free copy by U.S. Mail) for specific risk factors. Investment in any bond fund involves interest rate risk, credit risk, and possible loss of principal. As a general matter, when interest rates rise, the prices of fixed-income securities decline.
Our mutual funds are audited annually by Cohen & Co. We do not hold any of the assets in our mutual funds in-house. All bonds are held in trust for the benefit of our shareholders by our qualified custodian bank, U.S. Bank. The assets of each mutual fund are owned solely by the shareholders of that fund.
Am I able to access my account online?
We do offer online access to shareholder accounts. Click on the “ONLINE ACCESS” tab in the upper right corner of the site. There you will find some important information and a button to click through for online access.
How do I get started?
A free prospectus is available for Dupree Mutual Funds, which should be read carefully before investing. Click the following link to get started today.