Option (c): Municipal bonds are a type of bond that pay tax-free interest.
The government offers bonds that are not subject to tax in order to raise money for a variety of purposes. Because it delivers a fixed interest rate, this low-risk investment option is the best one. Similar to a fixed deposit, an investor can put a sizable sum of money in a tax-free bond in exchange for a fixed rate of interest.
Federal taxes are typically not due on municipal bonds' (also known as munis') income. Municipal bonds are issued by state, local, and city governments. However, when you file your taxes, you will need to disclose this income.
In some situations, municipal bonds are also exempt from state and local taxes. Municipal bonds are not subject to federal taxes. Consequently, based on where you live, you could never have to pay income taxes on the payments you get from the bond's issuer (but they may be subject to the alternative minimum tax or AMT).
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