StockScouter - Quantitative but Intelligent Analysis : Business Intelligence applied to Stocks

StockScouter takes Data Analysis with Gradient Analytics and adds intellectual facets to pick top 10(top 50) stock picks.

These stock picks assure you a gain of around 25% by following a sure buy and sure sell strategy having duration of six months.
Means, you just need to buy the top picked stocks, hold them for 6 months period, and sell it.
That easy. and You will be getting on an average 25% return. That can triple the amount invested along the 6 years.

You can decide your budget, and divide it between the stock picks and purchase them, hold the stocks for six months and sell at the end. The only thing is that you have to have faith and courage to do it at the given time. Sometimes, you may find that stocks are rewarding you and you start loving them. But, then stick to the StockScouter picks and its strategy.

If you want to find out why StockScouter strategy should work and what are the current picks, read the complete story here.

Following Buffet Steps of Investing

When measuring a company's reliance on debt, it's usually helpful to begin by examining its debt-to-equity (D/E) ratio. D/E can be easily calculated by dividing a particular company's total debt load by its shareholder's equity. Both of these key figures are located on the balance sheet. There's no hard-and-fast rule for evaluating this metric, but as a broad average for non-financial companies, it's usually wise to look for firms with D/E ratios below 0.50 (50%).

Time is the enemy of the poor business and the friend of the great business. If you have a business that's earning 20%-25% on equity, time is your friend. But time is your enemy if your money is in a low-return business.
25% ROE is best. And go with ROE > 15%

Look at ROE for more than 5 yr
looking at the current figure in isolation only tells part of the story, so check to see whether ROE has been falling, rising, or stable over time. Also, if a company has a particularly strong year, then its net income figure can be inflated, which can cause ROE to be exceptionally strong. Such one- or two-year blips have a tendency to fade quickly once the business environment becomes less favorable. Therefore, it's always important to examine ROE performance over a five- or ten-year period.

High ROE and Low D/E
By taking on additional debt, companies can effectively lower the amount of shareholder's equity they need to stay in business. By definition, this tends to inflate ROE. Therefore, its crucial to look for companies that have a high ROE and low D/E.

Cash Flow
One way to gauge a firm's cash flow production is to examine its free cash flow yield. This is calculated by dividing free cash flow by market capitalization, or the inverse of the Price/FCF ratio. A firm with a free cash flow yield of 10%, for example, generates 10% of its total market value in cash each year. That cash, in turn, can be used to pay dividends or fund share buybacks -- items that enhance shareholder returns.

401K vs. Roth IRA

Generally, it's best to invest in your 401K plan first, up to the amount your employer will match, then to invest in a Roth IRA. If you have additional funds to invest after making the maximum contribution to your Roth IRA, you should max out your 401K, and then invest in taxable accounts. There are always exceptions, however, so here are some points to consider when deciding the best order to invest your retirement funds:
Matching Contribution - many employers will provide a matching contribution when you elect to participate in the company 401K or other employer sponsored retirement plan. This is free money, and should be taken advantage of even if your 401K plan isn't the best due to poor investment choices, high expenses, etc. There is no matching contribution for a Roth IRA, so you should invest in your 401K up to the matching contribution first, before you invest in a Roth IRA.
Investment Choices - Most 401K plans have a limited number of investments to choose from. Roth IRAs can be opened just about anywhere: mutual fund companies, brokerage firms, banks, etc., which means your investment choices are unlimited. If your 401K plan has limited or poor investment selections to choose from, the Roth IRA may be the better choice (after you contribute enough to get the matching contribution in your 401K plan).
Taxes - although your 401K contributions are tax-deferred, which allows more of your money to go to work for you, money invested in a Roth IRA grows tax free. As long as you follow the rules, you may never pay taxes on the earnings in a Roth IRA. If you expect to be in a higher tax bracket when you retire, this could result in substantial tax savings.
Because withdrawals from a 401K account are taxed at your ordinary income tax rate, withdrawals could potentially push you into a higher tax bracket. If you have a combination of 401K and Roth IRA accounts, you have greater flexibility in choosing which account to withdraw from, which could allow for tax planning opportunities to help minimize your taxes during your retirement years.
One more note regarding taxes: 401K, traditional IRAs, and other employer sponsored retirement plans are subject to the Required Minimum Distribution rules; Roth IRAs are not. Again, having Roth IRAs in combination with your 401K accounts can provide tax planning opportunities not available to people who only have 401K accounts.
Withdrawals - your contributions to a Roth IRA are available to you penalty and tax-free at any time. Your earnings in a Roth IRA may also be withdrawn at any time. There is a 10% penalty, but this penalty may be waived under certain circumstances (disabled, first time homebuyer, qualified higher education expenses and more). Withdrawals from a 401K plan are much more restricted, as employers may or may not allow early withdrawals or loans.
Automatic investments - contributions to your 401K account are automatic since they come directly from your paycheck. This makes investing in your 401K easy and convenient, and after you've started contributing, most likely you'll no longer miss the money being invested. Investing in a Roth IRA takes more effort. Although many Roth IRA custodians will allow you to setup an automatic investment plan from your checking or savings account, it takes more discipline to invest in a Roth IRA than it does to invest in a 401K plan. If you think you don't have the discipline to invest in a Roth IRA account, then investing in a 401K plan (even a poor 401K plan) is better than not investing at all.

Though, everyone has own viewpoint, problems and situations...so....

Investing in Gold Coins

When you have a child, or even before you do, start collecting gold coins. When your child grows up, cash them in to send your high school graduate to the University of their choice. Your child can do the same for your grandchild. Collecting gold coins can make something special for your family. It can make your family special. Even rich and famous. Can it be done? Has it been done? Well, do you recognize any of these family names?
If you have heard of the Adams family, or the Brand family, or the Dupont family, or the Royal Farouk family, or the Garrett family, or the Green family, or the Hopkins family, or the Hunt family, or the JP Morgan family, or the Onassis family, or the Rothchild family then there is a good reason why. They built their fortunes from collecting gold coins.
Take for instance Mayer Amschel Rothschild. He worked in a coin shop, which made the way for the Rothschild's destiny as the richest family in the world. Because it is there that he learned the value of collecting gold coins. That is how he made his fortune. That is how he was able to open a bunch of banks.
People were getting so outrageously rich from gold coins that the government just had to step in and take them away. And the gold bullion and gold certificates too! If you owned them you were an outlaw. If you didn't turn them in you had to go to jail for ten years and pay twice the value of your gold plus ten thousand dollars on top of that. Thanks to the gold confiscation of April 5th 1933 by the Executive Order 6102 of President Franklin D. Roosevelt, the government had to build Fort Knox to hold its enormous collection of gold!
The people of our land of opportunity have been denied this most lucrative investment for forty-one years until... the last day of December 1974. That is when President Gerald R. Ford signed the bill authorizing private ownership of gold. Happy days are here again! Gold is legal again!

Trust Strategy for Mutual Funds rather than only ranks

A month ago, Scott(a cautious investor by habit) decided to invest Rs 3 lakh in a 'good' mutual fund.
He looked up the performance rankings of various funds, to try and zero in on the best fund. But a month later he is still confused, because there was no consistency or consensus amongst rating agencies.
Different financial web sites, magazines and newspapers came up with different conclusions as to the top rated funds.
This is because, the rating methodology adopted differs from agency to agency.
In a bid to prove that they are special and more incisive than the next agency, they adopt all kinds of techniques and statistical tools to come up with dissimilar results.
Why rankings differ
Most agencies adopt risk adjusted ratings, however, the definition of risk differs from agency to agency.
Some adopt the Sharpe ratio, some use the Sortino ratio and yet others look at standard deviation and beta.
Then there are others who choose particular parameters like size of assets, portfolio turnover, tenure of the fund manager with the fund, fund size, expense ratio then proceed to assign weights to each of these parameters to arrive at a composite ranking.
Others declare that they use a proprietary system which remains unknown to the public at large.
So, how do you pick the best fund?
Here are three simple steps to sort out the good from the bad.
1. View rankings with a pinch of salt
Most of these arcane rating methodologies are solutions in search of problems.
Don’t ignore them totally, however, when you go through them, keep your pinch of salt ready.
2. Ignore new funds on the block
If a mutual fund has been around for less than a year, ingnore it! Essentially - ignore one month, three month or six month returns and rankings. I will go to the extent of saying -- only look at those funds that have existed for over three years. Not only will you eliminate a whole lot of ‘me too’ upstarts, but it will also give you an idea about the sustainability of the returns of the fund.
3. Scout for common funds amongst various rankings
Now that you have significantly reduced the sample size, try and find the common funds that come up in the top ten lists of the various agencies. In other words, arrive at the lowest common denominator.
Quick tip: It is important that you invest in a well-managed fund, however, whether it is the top performing one or the second or the fifth, matters little.
Secondly, a topper today may come in fourth next year and so on. As long as you have invested in a quality portfolio that has stood the test of time, the particular ranking from any particular agency should matter little

Dividend Paying Stocks can be good in long-run

To find these stocks, I used Capital IQ, an institutional investment-analysis software package, to screen for stocks yielding more than 3%, with market caps greater than $1 billion (to provide stability), and with payouts less than 80% of free cash flow (more cushion means a company's better able to pay its dividend consistently). Strong operational returns are a must -- they provide a cushion against rough times, as well as fuel for the good times -- so I set a return on equity (ROE) floor of 10%.



http://www.fool.com/investing/dividends-income/2007/08/30/make-millions-with-7-stocks.aspx?source=iflfollnk0000003

Jump in when it's time to en-cash Growth

 

Even though you can't figure out ahead of time what a company's growth strategy will really be worth, you can get a good handle on what the market thinks. Simply subtract the other two parts from a company's market price. The remainder is the market's current estimate of the growth strategy's worth.

With that information in hand, you can make better investing decisions. In essence, the less you pay for a company's growth strategy, the better your chances of winding up on top. After all, if the strategy comes cheaply, then even if that strategic growth doesn't materialize, the company you're holding is still worth something. And if the strategy does pay off, then you've likely got yourself a company worth more than you paid for it.

That, in a nutshell, is how we value investors gain our edge. We certainly don't ignore growth. After all, no less a value investing luminary than Warren Buffett admits that "value and growth are joined at the hip." Instead, we simply steadfastly refuse to overpay for the growth we expect to see from our companies. By doing that, we ensure that a larger chunk of that growth finds its way to our pockets.

Buy Cheap Growth

Technorati Tags: Markets, Stocks, investment

The Secret of Making Money in the Stock Market

The stock market is a proven wealth builder and can and should benefit all participants. It is only fair that each one of us should be entitled to a piece of the action.
One thing these traders know is that the market is not an issue of trial and error but a fully quantifiable market by any fundamental Mathematics. You see, when we went to school we learn about the Standard Deviation in probability and statistics. This Standard Deviation is Mathematics and is quantifiable in modern science. Standard deviation was introduced by Mathematician Karl Pearson in 1893 although the idea was by then nearly a century old. This is the single most important idea that should explains all those mysteries, myths and legends you hear of in stock market.
Everything on this planet has properties and, or, characteristics. A stock, just like you and me, has properties and these properties are quantified by calculating the Standard Deviation of the stock. It varies from stock to stock. Our brains are lazy and what we can not understand we turn to astrology which gives our brains a rest. Rather than use planets in signs of the zodiac and financial astrology, or imagining of the latest rumors, invest that time in the study of probability and statistics. If its not you to study, who should? Probability and Statistics is that study that has to do with tossing a coin to get a tail or a head. And as simple as it may sound, tossing a coin and getting a head for only two consecutive times is an extremely very difficulty thing contrary to what our lazy brains would want us to believe.
Standard Deviation is all about vibrations. Vibrations is like in music, vibrations in a string, water vibrations, earthquake vibrations, light and electromagnetic vibrations. The stock market is like vibrations too. For the price to move it must vibrate. The stock spends a lot of time vibrating in a neutral sideway range which unfortunately we do not like. We want the stock to go to the roof the next day after we have bought it. Vibrations are waves. Waves have crests and troughs and travels from one price to another. One crest is often followed by a second crest which is followed by a third crest and so on and so forth. Every crest is separated by a trough to create an alternating pattern of crest and troughs.
Like a bouncing tennis ball, a lower bounce than the previous bounce means the ball is coming to a halt. In the stock market, strength is quantified by series of crests where each crest exceeds the highest point of the previous crest and weakness by series of troughs where each trough goes lower than the lowest point of the previous trough.
People out there will tell you to trade in the direction of trend and they go further to say getting the trend is easy: do this and that. Contrary to the believe that determining the stock's trend is easy, in real time this is very difficulty and you can not have a probability of 100%, otherwise each one of us would be a winner in the market. Some investment advisers and the media are either oblivious and always bullish or immoral, merely giving the public what it wants. It ’s only a question of, is it this group of stocks or that group, this sector or that sector?
Back to crests and troughs. Whenever two crests meet up with one another they produce a bigger crest which is constructive, and, whenever a crest and a trough meet one another they tend to cancel each other producing a smaller trough or crest which is destructive. If you have ever wondered why carpenters saw the wood in the directions of the grains rather than up against the grains, wonder no more - these guys find it easier and the bundles they produce are sliced clearly leaving a smooth surface with minimum defects.
A bigger crest or trough is made up of smaller troughs and crests. How many of the smaller ones makes the bigger trough and crest is the puzzle that will make our lazy brains consult astrology. Lets leave that as it is because the market moves yoyo up and down, so we comfort ourselves.
The real forces that move the markets are the moving averages. They are a measure of accumulation of strength and weakness over time due to news, economic growth reports, manipulation, fear and greed. There are many moving averages just as there are different types of traders. It is through the dynamics of the moving averages that there are crests and troughs. The bad thing about these moving averages is that they only tell us about what happened rather than what is happing.
One of the most successful trading tool since time immemorial is multiple moving averages crossover, and the acceleration in all averages is either positive in all averages or negative in all averages that you are using. If the acceleration in averages is positive, you go long, and if the acceleration is negative, you go short. This really is multiple time frame where you trade using the shorter trend but only if the longer trend supports it.
Good trading requires you to have safety measures upfront. Always make sure that every trading position that you open has a corresponding stop loss order, repeat, every position that you open has a corresponding stop loss order. I can repeat this until breakfast tomorrow. Trading without stop loss orders is like driving an automobile with faulty breaking system. Every now and then check to see if your stop loss orders are still active. If your broker's system fails, when it come back it may come without your stop loss orders. These stops are not free. It is among those fees that should keep your broker in business and you should grandly pay him even if your stops are rarely used. And why not? And talking about brokers, get yourself a good and inexpensive broker. There are many out there. A broker who charges more than $1.0 per 100 shares of stock is expensive and if you are paying more than that, then you will develop fear of exiting trades as you contemplates the broker's commission you are to incur. A good broker should embrace modern technology and you should promote them because if its not you, then who? And never get married into certain stocks. A company and its stock are two very different things. A stock that is not making money for you is not a thing. Throw it to the dogs.

Technorati Tags: Markets, Money

Real Estate Investments - Investing in Land

It is really surprising that more people aren't prospecting in land. With cities growing rapidly to encompass areas that were once suburbs, land is really at a premium and those who purchased land years ago are seeing their investments bringing in top dollar from developers who are in need of space. Land prospecting has long been a mainstay of the real estate industry and in reality more money has been made from raw land than anyone realizes. If you are one of those people who is interested in real estate investing then perhaps raw land is something you should check into. Think about it this way. The population of this country is rising fairly quickly and with that rise in population comes a real need for living space, shopping space, recreational areas and so on. Simply put there is a need for land to develop. As cities grow more and more of the suburban and rural areas are being developed. In addition many people want to live outside of the major urban centers and so rural land is being gobbled up to make subdivisions, gated communities and new cities/towns. All of this development requires land that has to be purchased from someone. Why not from you? Take a look at your local area and how it is expanding and then set about looking for undeveloped land around the outskirts of the area. Chances are there is a fair amount of open area that is available for purchase. When thinking about this type of land it is imperative to consider whether or not you will have to clear the land and if it is a sizable portion then this can get costly. Many people who do this subdivide their land and sell it off to developers in pieces and this can bring in an incredible profit. Buying land is relatively cheaper than buying homes and you can usually find some great deals in areas that have not been considered for development yet, the trick is to think ahead to where development will be necessary in the future. Even if the land is not slated for development, the appreciation of property will continue to assure the value of the purchase. Get in on land prospecting, it could just be your ticket to a successful investment.

Mutual Fund Classes - Why it matters?

Class A

Class A shares typically have a front-end load or a charge that is incurred when you buy the shares. The fees are charged as a percentage of the amount invested and sometimes can be lower if you are buying more shares.

Class B

Class B shares normally impose a contingent deferred sales charge, or back-end load that can decline the longer you hold your shares. Now, while this might seem to be a less expensive way to buy shares, it can pay to check what other fees are charged. According to the National Association of Securities Dealers Class B shares may have higher expenses than Class A shares. Additionally there may be a sales charge when the Class B shares are sold. If held for a long enough time, Class B shares often convert to Class A shares with lower operating expenses.

Class C

Class C shares, which often are used for asset allocation, do not charge a front-end fee but do typically charge higher operating expenses than Class A shares. Additionally there may be a sales charge if you sell within a certain period of time. If Class C shares are held for a long time, the costs could be higher than either Class A or Class B shares.

Technorati Tags: Investing

Investment and Saving Tips

Index Funds? Is it really good? How Much?

Index Funds are very safe and rewarding funds for safe players who don't have much knowledge of stocks/mutual funds or don't have time for that.

But, as these Index Funds are aligned with American Biggies it doesn't show large growth or reward potential. So, if there is any Index Fund investing in Mid-Cap or Small-Cap that would be real good to go. e.g. ING Direct has Index funds in all 3 segments Small Caps, Mid Caps and Large Caps.

This small move can fetch real good rewards with almost the same safety.

Diversifying from Stocks to Real Estate

It's called a Real Estate Investment Trust or REIT.

Vanguard's REIT Index Fund (VGSIX), which has a dirt-cheap expense ratio. With a $3,000 initial investment, your fund only costs a measly 0.21% per year -- a huge advantage over the average expense ratio of 1.55%. On a $3,000 investment, that means you'll pay just $6.30 instead of $46.50. Another bonus: This fund has a total return of more than 288% for the 10 years that ended with May 2006. Or You can cash in on streetTracks Wilshire REIT (RWR), whose gain of 31% for the 12-month period that ended with February makes it a "hot property!".

Dividend Reinvestment Plans (DRPs) and their cousins, Direct Stock Purchase Plans (DSPs)

More than 1,000 major corporations offer these types of stock plans, many of them with fees low enough (or free) to make it worthwhile to invest as little as $20 or $30 at a time. DRIPS are perfect if you only have small amounts to invest and want to make frequent purchases (a strategy known as dollar-cost averaging). Once you're in the plan, you can set up an automatic payment plan, and you don't even have to buy a full share each time you make a contribution.

Save on Broker Cost

At Merrill Lynch "representative-assisted" (that's "broker" in plain English) trades cost $85 per transaction (plus a per-share surcharge) if you're buying 251 to 500 shares. Make just 10 trades in a year and you've given $850 of your hard earned dollars to your broker. But make those same trades using one of the online brokers below and even at the highest commission, you're paying just $199.50.

You can go online brokers like Fidelity, ShareBuilder, TD Ameritrade.

Great Advice of Diversification for New Bies from Tom Gardner

Take $5,000 and open a discount brokerage account, paying something like $10 per transaction -- and spread it across 15 different investments including: funds, larger individual names that pay a dividend and smaller companies that most Wall St. investors aren't watching.

15 names? That's only $333 per investment on average. That's OK because diversification is the key to your long-term success. Tom Gardner (Motley Fool CEO and co-founder) should know. He says "by spreading out your money, you also beat away the speculative instinct." Highly diversified people end up realizing that their stock investments are a lot like a bank account with much, much higher interest rates.

A real small tip for buying any good Stock

With a stock-price way below its 52-week high would surely reward us while tending to reach its 52-week high again. So, any good stock like Apple or Dell or Intel would be a good purchase when they go way below its 52-week high.

Recycled Gold: A Hot New Investment Strategy

Away from Wall Street and the stock market, investment professionals understand that although they can spread their bets across sectors and industries it is hard to distance oneself from the overall economic climate of a country. That is of course unless you invest in commodities such as gold. The reason for this is that gold, like currency has the same value anywhere around the world, and a value that is generally immune from economic forces such as interest rates and employment. The use of recycled gold is not just for jewelry as many amateurs believe. Gold is used in many products, such as satellites for example, because of the unique qualities that it has. Gold is naturally corrosion resistant; however it is also very soft. This makes gold an ideal candidate for being used as an alloy or compound where its qualities can be mixed with another metals to yield strong results. For those reasons, as well as its aesthetic qualities, gold is always needed and its price is generally affected by both supply and demand alone. The reason for this is that it is needed in countries around the world, so only an overall drop in the world’s economy can have an affect.

Because gold is heavily commoditized, this means that scrap gold has a value based on the weight of gold that you have. For example, an old necklace made of gold does not just have value in terms of what someone may pay for the necklace. It also has value in terms of what someone would be willing to pay for the weight of gold that it is made of. For those reasons alone, pawn brokers and cash day advance companies are happy to give gold a value, without being worried about their ability to resell it in jewelry form. You see, gold is also a highly liquid market. What does this mean? Well when a stock broker buys shares in a company he does not just consider value based factors, he also considers how liquid a stock is. This mean, how often it is traded. A stock which is not traded very often will usually be much more difficult to sell when it comes to a time that one would need too. Because gold is bought and sold all the time, there is never any difficulty in being able to sell it.
For those reasons and more, businesses and high net worth individuals have invested in gold for the past 5000 years. Now buying recycled gold can have more value because an individual can pay less for the gold, because of the perceived cost and inconvenience of turning it back into pure form. That is where the market is, and as something which can be sold easily it is a business which is easy to scale when you have all the fundamentals in place. It is also the case that because everyone is not aware of the commoditized and liquid market that exists, people you are buying from might not know how easy it will be for you to make money they could otherwise make.

Investing in Small Caps

70 Times Better Than the Next Microsoft

That's a persuasive case for putting small-cap value stocks to work in your portfolio. (We'll get to just how persuasive later.) And you've probably seen plenty of other data showing that small caps outperform large caps and value outperforms growth. Why, then, doesn't small growth outperform large growth? And why does small growth, on average, end up being the worst choice for your money?

Moneychimp.com offers a theory, and I think it's worth seriously entertaining, at least when it comes to how you invest in small caps. Just think about how investors might mentally categorize large- and small-cap value and growth companies.

70 Times Better Than the Next Microsoft

Exchange Traded Funds - Index Funds

An exchange-traded fund (ETF) is a type of index fund that is traded on the exchange like a stock. This could be considered as safe investment because we can assume that index is not going to be negative in the long run.

Most of such funds track indices. S&P 500 Index, Dow Jones Industrial Average

and NASDAQ 100 are few popular among them.

ETFs don't need to manage the funds as it directly relates to Indices or some other average.

Investment returns may still depend on the duration and time of your investment. ETF investments are more suited for large investments due to its trading costs associated with investing in ETF. So, it's good for those who consider this as a stable investment.

Technorati Tags: Finance, Investing, Investment, Index Funds, Mutual Funds, Stocks, Exchange Traded Funds

Individual Retirement Account - Tax Free Savings & Investment

An IRA is an Individual Retirement Account. All IRAs allow any earnings to grow tax-deferred which keeps more of your money working for you and allows these tax-advantaged accounts to grow faster than other similar taxable accounts. Other than a 401(k) or other employer-sponsored retirement plan, IRAs are generally regarded as one of the most tax-efficient ways to save for retirement. The most popular IRAs are Roth and Traditional.

Roth IRA...

Maximum Contributions
- $4,000 under age 50
- $5,000 age 50 and over

Tax Advantages
- Earnings may be withdrawn after age 59½ tax-free, provided the account has been open for 5 years
- Contributions can be withdrawn at any time without penalty

Withdrawals
- Earnings cannot be withdrawn without a penalty until the account has been open for 5 years
- No Required Minimum Distribution (RMD) at age 70½

Traditional IRA...

Maximum Contributions
- $4,000 under age 50
- $5,000 age 50 and over

Tax Advantages
- Earnings grow tax-deferred until withdrawal
- Contributions may be tax-deductible

Withdrawals
- Earnings and tax deductible contributions are taxed as ordinary income when withdrawn after age 59½
- A Required Minimum Distribution (RMD) must begin after age 70½

Tax Free Investments - Munis - Municipal Bonds

It's a nice option for those who want to keep hold of their investment money and also it's Tax free income. That only means, the interest earned from this investment is tax-free. Few of them are Federal Tax Free and few of them are Federal and State Tax free.

Why tax free?

Municipal bonds are debt obligations issued by states, cities, counties and other government entities to fund public projects such as construction of schools, highways, hospitals and sewer systems. As an incentive for investors to buy municipal bonds, the interest earned is free from federal, and in some cases, state income tax.

General Obligation Municipal Bonds are backed by the credit of government issuer. Revenue Municipal Bonds are backed by the funds generated from a specific project (i.e., tolls from a bridge or revenues from a water system). Revenue bonds generally pay higher yields than GO bonds, because payments are secured only by a specific revenue source as opposed to the full taxing authority of the issuer.

Though the returns from these investments are comparatively less than that from taxable mutual fund investments, it's a good option to generate tax-free income for those who are under higher tax bracket.

In addition to receiving tax - free income, investors who buy municipal bonds issued in their state of residence may enjoy additional tax benefits. That's because many states do not tax residents on the income earned from munis issued in the state. Buying such funds of other state, may bring federal tax relief but not state taxes.