Municipal Fund Securities

529 College Savings Plans
Local Government Investment Pools

Product Information

Municipal fund securities are a unique class of municipal securities.  Unlike municipal bonds – which pay interest semi-annually and repay principal at maturity – municipal fund securities are equity interests in an independently managed pool of investments.  Investors realize gains or losses based on the performance of the pool's underlying assets.

Although municipal fund securities are, in many respects, similar to registered mutual funds, they are not subject to most of the federal securities laws applicable to mutual funds.  This is because municipal fund securities are issued by state or local governments, which generally are exempt from these laws.  However, broker-dealers that effect transactions in municipal fund securities must comply with MSRB rules.

A municipal fund security is defined in MSRB Rule D-12 as a municipal security of an issuer that, but for Section 2(b) of the Investment Company Act of 1940, would be considered an investment company (i.e., a mutual fund).  A security is a municipal fund security only if it is both (i) a municipal security and (ii) exempt from the Investment Company Act because the issuer is a state or local government.

Broker-dealers currently market and undertake related activities with respect to two types of municipal fund securities: qualified tuition programs under Internal Revenue Code Section 529 ("529 college savings plans") and local government investment pools ("LGIPs").

529 COLLEGE SAVINGS PLANS: 529 college savings plans are designed by states to provide tax-advantaged means of saving for college. Read our primer on 529 college savings plans for a general background and to find other resources for understanding these plans.

LOCAL GOVERNMENT INVESTMENT POOLS: LGIPs are designed by states or local governments to provide investment vehicles for public funds of local governmental entities. Read our primer on LGIPs for a general background and to find other resources for understanding these pools.

Municipal Fund Securities: Introduction, Product Information, Qualification Requirements, Securities Regulation, Information for Investors, Links to Other Resources

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