South Dakota Bonds (South Dakota Municipal Bonds)

 

 

South Dakota bonds are issued to help cities, counties and the state government to raise funds for community projects, such as building a highway, schools or hospitals. South Dakota municipal bonds, also called South Dakota munis, are popular among investors.[br]

 

Reasons for the Popularity of South Dakota Bonds

The reasons for South Dakota bonds being highly popular among investors are:

• The interest paid on the munis is exempt from Federal taxes.

• Investors do not need to pay state taxes on the interest in case they reside in the state in which the bonds were issued.

• The safety record of municipal bonds is extremely high.

 

Types of South Dakota Bonds

There are two types of South Dakota municipal bonds:

• General obligation (GO) bonds: These bonds are issued to pay for projects such as construction of schools and sewer systems.

• Revenue municipal bonds: These types of bonds are issued by special state or entities authorized by the local government. The interest on these bonds is paid from the revenues generated by the business that had backed the obligation. If a bond is issued by a water company, bondholders receive their interest from the cash generated from water bill payments made by customers.

 

Although most investors consider general obligation bonds safer than their revenue counterparts in terms of returns, this is a misconception.[br]

 

Safety of South Dakota Bonds

There is limited information on the safety of individual bonds issued so far in South Dakota. The most reliable method for gauging the safety profile is the credit ratings assigned by various credit agencies, such as Standard & Poor’s and Fitch Ratings.

 

Another way to ensure the safety of your investment is by considering the following factors:

• Who is responsible for making the interest payments on the bonds?

• What is the underlying economics of the issuer?

• Is the state an emerging community with a growing, high-net worth citizen base or is it a deteriorating metropolis with a large proportion of the population in the lower income bracket?