Maryland Muni Bonds: A Guide to Cost and Performance

Maryland muni bonds are a type of investment that can provide a relatively low-risk way to earn a steady income.

They have a relatively low minimum investment requirement of $500, making them accessible to a wide range of investors.

The interest earned on Maryland muni bonds is generally exempt from federal income tax, which can be a significant advantage for investors.

This exemption can result in higher after-tax yields compared to other types of bonds.

Investing in Maryland municipal bonds can be a smart move, especially when it comes to costs. The funds with the lowest cost are often the most attractive, with individual shareholders preferring firms that promote low-cost investing.

Individual investors can keep more of the market return by choosing low-cost index mutual funds, which aim for the middle of the market return. This is a key benefit, as excessive investment assessments can eat into returns.

Here's a breakdown of the costs and performance of one of the funds:

It's essential to note that even with low costs, some years may see negative returns, as seen in 2022. However, the fund has shown resilience in other years, with notable returns in 2023 and 2019.

Investors in low-cost index mutual funds tend to outpace those who pay excessive fees by keeping more of the market return. This is especially true for Maryland muni bonds funds, where individual shareholders can benefit from very economical index mutual fund investing.

The cost of investing in these funds is surprisingly low, with some funds having expense ratios as low as 0.48%. This means that investors can keep more of their returns, rather than sharing them with the securities industry.

A great example of a low-cost Maryland muni bonds fund is the T. Rowe Price Maryland Tax-Free Fund, which has an expense ratio of 0.48%. This fund is purchased and sold with the MDXBX trading ticker symbol.

Here are some of the lowest cost Maryland municipal bonds funds:

These low-cost funds are a great option for individual investors who want to keep more of their returns and outpace the competition.

The annual rate of return is a crucial factor to consider when evaluating the performance of an investment. According to the data, the annual rate of return for the investment ranged from -13.77% in 2022 to 6.53% in 2023.

The rate of return at NAV (net asset value) varied significantly over the years, with the lowest being -9.94% in 2022 and the highest being 6.40% in 2019. In contrast, the rate of return with sales charge was even more volatile, with a low of -13.77% in 2022 and a high of 2.00% in 2023.

It's worth noting that the Bloomberg Municipal Bond Index, which serves as a benchmark for municipal bond performance, had a rate of return ranging from -8.53% in 2022 to 6.40% in 2023.

Here's a summary of the annual rate of return for the investment over the past 10 years:

Investing in Maryland municipal bonds can offer several benefits, but it's essential to understand the associated risks.

These funds provide triple-tax-free income for Maryland investors, which can be a significant advantage.

The funds focus on long-term securities to provide high yields, with assets concentrated in investment-grade bonds to reduce credit risk.

However, all investments are subject to market risk, including the possible loss of principal.

A rise in interest rates typically causes the price of a fixed rate debt instrument to fall and its yield to rise, while a decline in interest rates causes the price to rise and the yield to fall.

The fund's state-specific focus makes it more susceptible to unfavorable developments in Maryland than funds that invest in municipal securities of many states.

Municipal securities can be volatile and significantly affected by adverse tax or court rulings, legislative or political changes, market and economic conditions, issuer, industry-specific, and other conditions.

Here are some key risks to consider:

Maryland muni bonds are designed to provide a total return with an emphasis on income exempt from federal income tax and Maryland personal income tax, if any. This means you can enjoy tax-free income from these bonds.

The investment objective of Maryland muni bonds also considers capital appreciation, which is the potential for the bond's value to increase over time. This dual focus can help you grow your investment while earning tax-free income.

A small portion of income from Maryland muni bonds may be subject to state, federal, and/or alternative minimum tax.

Capital gains, if any, are subject to a capital gains tax.

To give you a better idea of the potential returns, let's take a look at the yield values for Class A shares.

This means that if you invest in Class A shares without a waiver, you can expect a yield value of 2.74, while with a waiver, the yield value increases to 2.89.

Maryland muni bonds have a long history of providing regular income to investors. The fund's daily income is declared daily, and monthly income is the sum of all daily dividends in a month.

Regular monthly distributions from the fund may be subject to federal and/or state and local taxes. Any taxes paid may be re-characterized as ordinary income, which will be reported on shareholders' 1099-DIV forms at the end of the year.

Ordinary income from the fund may include both Short-Term Capital Gain and market discount. Market discount is the excess of the stated redemption price of the bond at maturity over its basis immediately after acquisition.

The Top 10 Holdings of the investment portfolio are a diverse mix of municipal bonds. The Maryland Community Development Administration's MD Var-Amt-Residential-Ser G-Remk bond has a coupon rate of 3.260% and matures in 40 years.

The State of Maryland's MD Ref-Ser B bond has a coupon rate of 5.000% and matures in 25 years. This bond is a good example of a short-term investment.

The County of Anne Arundel's MD Cons Gen Impt bond has a coupon rate of 5.000% and matures in 33 years. This bond is a good example of a long-term investment.

Here are the Top 10 Holdings, listed in order of their maturity dates:

The Maryland Health & Higher Educational Facilities Authority's Ref-Medstar Health Inc MD bond has a coupon rate of 5.000% and matures in 29 years.

The fund's distribution history is an important aspect of its overall performance. The fund declares dividend amount daily, which is then summed up at the end of each month to determine the monthly income.

Dividend amount can be subject to federal and/or state and local taxes, and may be re-characterized as ordinary income. This re-characterization will be reported on shareholders' 1099-DIV forms after the end of the year.

Some income may be subject to state and local taxes and to the federal alternative minimum tax. Capital gains, if any, are subject to tax.

The fund's distribution history is detailed in the table below: