Closed-End Muni as a Passive Income for High Income Earner


I came across the closed-end muni in Sep and have started purchasing for 2-3 months. In this historically low interest environment, I believe it has provided high income earner a good alternative of tax-free cash flow monthly.

我在今年九月接触到封闭式地方债基金,并且这两,三个月都在购买。在利率历史新低点的, 我认为它提供了高工资人士一种免税月付分红。

Why Muni? Municipal bond’s income is tax exempted at federal level and state level if you live in the state. If you put in the money in the saving or buy CD, the income is taxed, even the dividend from stock, interest from corporate bond and treasury note/bond, you have to pay tax as well.


Why closed-end? Closed end fund is traded like ETF, managed like typical mutual fund. But it has unique advantage being closed at not being able to issue new or redeem old shares after IPO. It can use more leverage and it can invest more in asset. I was walking away from muni mutual fund several times because its lackluster yield. Muni closed-end funds I bought now have a distribution rate around 4.5% (tax equivalent yield around 9%) which is very attractive.

为什么选择封闭式基金。封闭式基金像ETF交易,像mutual fund这样被管理。但是封闭式基金在IPO以后不会发行或则赎回, 所以它具有一些独特的优势,可以加更多的杠杆,基金可以绝大部分投入到购买资产。我曾经看过并且放弃了地方债基金,主要是回报率太低。但是封闭式现在有4.5%的分红率(相当于税前9%)非常吸引人。

Risk? Yes, there is always some risk. It is not new that muni bond declared default. Not to mention, we are in a pandemic thus a lot of uncertainties. So to counter this, we need to invest in a fund which has good diversity as oppose to buying single bond. Secondly, pick a reputable fund that have expertise in local market so they can predict bond performance with business activities constantly in observation. Risk also presents opportunities, the fund manager can finance the buy and leverage at near-zero interest rate, also the muni bond price had been beaten down due to pandemic so the fund can add a lot of bargains to its portfolio. We are near the end of pandemic, so cash flow from distribution now should be more certain and likely to increase.


As I mentioned earlier due to political and economic outlook, Muni is a good place to be. Of course, a good investor will purchase the asset in several steps to smooth out price volatility.


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