What are tax-free municipal bonds?
Municipal Bonds are debt securities issued by state and local governments to raise money for 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 be free from state taxes as well.
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. Transaction costs, research and monitoring requirements, and diversification concerns compel many investors to turn to municipal bond mutual funds.
Dupree Mutual Funds hold many bonds with various maturities from various issuers carefully selected by our municipal bond professionals. Shareholders benefit from daily liquidity at NAV you can buy and sell shares each day to meet investment goals or fulfill cash needs with no loads or transaction fees.
Investors in Dupree Mutual Funds own a small piece of each bond in the fund in which they invest, and receive a proportional share of the interest income which accrues as a daily dividend and pays monthly or quarterly, depending on the fund.
Why should I buy a state-specific municipal bond fund vs. a national municipal bond fund?
National funds buy munis from many different states, often including bonds from the largest municipal issuers such as California and New York. Shareholders in states which have state income tax may be required to pay such tax on some or all of the dividend income from a national muni fund unless the state makes no distinction between income earned from in-state muni bonds and out of state muni bonds. Additionally, national municipal bond funds often hold some bonds subject to AMT.
State-specific Dupree Mutual Funds are offered with 5 states in mind: Alabama, Kentucky, Mississippi, North Carolina and Tennessee. For residents of those states, investment in the respective fund allows for dividend income free from federal and state taxes (and AMT).
Many investors feel more comfortable owning bonds in their states of residence. Some believe that a national fund offers more diversification, but we believe that a well-diversified portfolio of state, county, and local issues can be assembled that mitigates much of the risk of investing in a single state.
What’s the difference between the two funds in KY, NC and TN?
For Kentucky, North Carolina and Tennessee, we offer two different types of funds – an “income series” and a “short-to-medium” series.
The “Income Series” funds’ nominal maturity will usually average 10 years or more, while the “Short-to-Medium” series nominal maturities will usually average 2-5 years.
Long-term investors often prefer our Income Series funds, as they have typically enjoyed higher yields. Investors harboring concerns about the potential for a sharp rise in interest rates typically prefer the Short-to-Medium Series. Of course, when interest rates rise, all bond prices generally fall.
Past performance is no guarantee of future results, and new investors should closely examine the prospectus and fund attributes before selecting an investment. We endeavor to provide the highest income without undue risk to principal in accordance with prospectus guidelines in all Dupree Mutual Funds.
Am I completely free of paying tax on this investment?
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 subject to the AMT. By prospectus, Dupree Mutual Funds does not buy such bonds for our municipal portfolios. Dupree 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 munis 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 muni yielding 4%. However, if your combined state and federal marginal tax rate is 30%, then the tax equivalent yield on the muni is actually 4% / .7 = 5.71%. This means that you would have to buy a taxable bond yielding 5.71% to get as much after-tax income as a tax-free bond yielding 4%, all else being equal. Investors must carefully evaluate their tax situation and other factors to determine whether or not tax-free bond funds make sense.
How often do the funds pay dividends?
Each fund holds many bonds that pay interest. Usually this interest is paid by the bonds twice a year, but each bond’s schedule is different. We collect the interest on each of the bonds held in our funds and pay it out to shareholders as a mutual fund dividend. All tax-free characteristics of the individual bonds are passed along to fund investors.
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 the 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.
We pay out the full amount of accrued interest to shareholders on a regular schedule. Investors can either receive the interest in cash through ACH to their bank account or a physical check in the mail. Our five “Income Series” funds pay dividends quarterly, and our three “Short-to-Medium” funds and our Government Bond Series pay dividends monthly.
How long have you been around?
Dupree Mutual Funds were first offered to investors in 1979. The Kentucky Tax-Free Income Series is the third-oldest single state muni fund in the country. See our history to learn more.
Will I be assigned an adviser/broker/representative with my account?
Our funds are offered through a few external platforms (Fidelity, for example) but most of our shareholders work directly with us. We have full-time registered representatives who are the primary point of contact for our shareholders. Our registered representatives stand ready to answer all your questions. Our representatives are 100% salaried (no commissions) to help to ensure they answer your questions in an objective way.
We do not assign specific accounts to specific representatives- if you call during business hours, you’ll always get to talk to someone about your account or answer questions about a new 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 day-to-day (in other words, your principal is not guaranteed as with an FDIC-insured bank account). However, our goal with all our funds is to maximize income without undue risk to principal. Please see our prospectus (available here or call 1-800-866-0614 for a free copy in the mail) for specific risk factors. Investment in any bond fund involves interest rate risk, credit risk and possible loss of principal. When interest rates rise, the value of fixed-income securities generally falls.
Our mutual funds are audited annually by Ernst & Young. 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 custodian bank, U.S. Bank. The assets of each mutual fund are owned solely by the shareholders.
Am I able to access my account online?
Currently we are able to offer read-only 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.