The DC, however, should become knowledgeable as to what municipal bond best suits him since not all municipal bonds are tax exempt. On the other hand, if the bond funds are used for a sewer district, an airport, or transportation facilities, the income may not only be taxable but subject to the alternative minimum tax. Most bonds are held for ten years or more and, therefore, one must be certain to check out the credit rating of a particular bond. This is usually a good idea if the insurance is not too costly.
Municipal bonds are often very difficult to liquidate on short notice.
If the DC is concerned about access to his funds, he may wish to consider a mutual fund instead. The DC, of course, must be careful to check out the historical yield of the mutual fund as contrasted with other mutual funds. The DC will want to know whether this mutual fund is investing in tax exempt bonds only and whether it is tax exempt federally as well as protected from state taxes. The DC must examine all charges associated with the acquisition into the fund including what the management would charge for running the fund. The DC would also want to individually check out the types of municipal bonds purchased by the fund and their particular credit ratings as well.