Zero coupon bonds are bonds that do not pay periodic interest but are sold at a discount to make up for the lack of interest payments. Instead of receiving interest, the holder receives the full face value of the bond at maturity. Convertible bonds are bonds that can be converted into other securities of the issuing corporation, generally shares of common stock, though certain provisions regarding conversion are attached to the bond. Click here for more on Bonds and their terminology. Individual investors purchase the majority of municipal bonds.
Most municipal bonds are free of federal income taxes on interest distributions.
Also, they are often free from state and local taxes in the state in which they are issued. These features make them hugely popular among small investors. Municipals are considered relatively safe from default. They have maturities of 10 years or more. The municipal issuer repays the bonds with funds raised by taxes, fees or property sales.