Question

What are the advantages and disadvantages of taxable bonds relative to a tax exempt bond? who is the issuer of tax except bond?

Answer 1

Advantages of taxable bond to tax exempt bond:

• Even after taxation on interest income from taxable bond, it generally offers higher return than tax exempt bond
• Tax exempt bonds are issued by government entity only, so if one wishes to buy any corporate bond then it should be taxable bond. Hence there are more choices in taxable bonds.

Disadvantages of taxable bond to tax exempt bond:

• Interest earned on the investment in taxable bond gets taxed which is not the case with tax exempt bond
• Taxable bond carries higher risk than the tax exempt bond as tax exempt bond issued by government agency, hence it has lower chance of default

Tax exempt bond issued by Government or it's agencies for the purpose of infrastructure development or any capital expenditure.