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I have a small sum of money that I would like to put to work for the next 5 years and then must be available again for my use.

I want to take advantage of good muni rates and their tax advantages, but I also want to mitigate my exposure to default risk.

I thought that I should buy an intermediate muni bond fund, but this isn't ideal because I want to be to interest rate risk now and not in 5 years.

Is there some sort of bond investment trust that buys bonds now, holds them to maturity, and returns the proceeds? i.e., investing $1000 now would guarantee that I would get $1000 back minus the default percentage experienced by the fund.

Does such a product exist?

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    I don't know any muni funds off the top of my head, but I believe the type of fund you're looking for is a target date bond fund. – John Bensin Sep 10 '13 at 18:56
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Target Date Bond ETFs: Best or Worst Fixed Income Funds? references a product at least in terms of being a bond fund that exists, Target Date Bond ETFs. While the article is a bit old as it came out 7 months ago, "AMT Free Municipal Bonds by iShares" would be the product to explore and see if the ticker exists.

Shares Launches 2018 Muni Bond ETF may be the product you want assuming a 5 year time frame as the final date referenced in the article is Aug. 31, 2018 approximately. Remember to do your own research but this would seem to be what you wanted.

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I don't know whether you'd consider buying a single bond instead of a fund. Strips are Treasuries where the coupons have been "stripped" to produce debt instruments with a fixed maturity date. They pay zero interest. Their value comes from the fact that you buy them at a price less than 100 and they are worth exactly 100 at some point in the future.

You can buy them with any year/month that you wish. They are backed by the federal government and are considered to have no default risk.

Like most bonds the price is actually a percentage and they mature at a 100.

The one that expires 9/30/2018 costs 91.60 and returns 100 on the expiration date.

The price list is here

There's more information about them here

First of all, they are still T-bonds (in all but the most legalistic sense) which means they are the safest, most risk-free investment possible. The U.S. federal government has stellar credit and a record of never defaulting.

These bonds have no call features, so the timing and distribution of bond payments cannot be altered by any foreseeable occurrence.

They are sold at a known - and generally deep - discount off a known face value that can be redeemed at a known date, so buyers know exactly how much they will earn from an investment in STRIPS.

  • I need to reach for a little more yield than Treasuries. – Pablitorun Sep 12 '13 at 10:07

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