Private and public companies aren’t the only lucrative investment options investors prefer. In today’s world, investors like to keep a tab on diverse investment opportunities, including real estate, government securities, municipal bonds, and more. By exploring different options, investors have a chance to diversify their portfolios and manage risks.
Institutional and private investors might rely on skilled analysts to discover potential investment opportunities. Even retail investors use new-age trading platforms for rich insights. Since demand for government-backed securities has increased in the past few years, municipal research has become essential. Read on to understand the importance of municipal research services for investors and analysts.
Are you familiar with the municipal market?
You might be familiar with securities issued by the central government for public and private investors. Usually, central governments issue securities in sovereign debt, multilateral, and government bond markets. Usually, the central government of any country issues securities in primary markets for investors.
Do you know where local and state governments issue securities? Local, state, and municipal governments depend on the municipal market to issue debt securities. Local and state governments issue debt securities to secure funds for projects like airports, charter schools, healthcare, housing, and infrastructure. Government entities like transport authorities, district committees, and school districts can raise funds in the municipal market.
A wide range of debt securities are issued by government entities in the municipal market. Since the credit risk is lower for government entities, investors prefer debt securities issued in the municipal market. A few securities issued within the municipal market are as follows:
- Taxable municipal bonds are available for investors that offer interest at regular intervals. However, the interest income is subject to taxes according to the local/central laws.
- Non-taxable municipal bonds are available for investors. With non-taxable municipal bonds, investors pay zero or minimal taxes on the interest income.
- Government entities issue RO (Revenue Obligation) bonds for projects likely to generate revenue in the future. The issuer pays interest to investors with the help of generated revenue.
- State governments issue SDLs (State Development Loans) to collect funds and complete development projects. These loans are long-term financial instruments used to fund state development projects.
- Government entities might issue GO (General Obligation) bonds for investors. These bonds are backed by the creditworthiness of the local or state government.
- Government entities issue municipal notes to collect immediate funds. Municipal notes are short-term instruments launched for urgent projects.
Understand the concept of municipal research
Institutional investors and wealthy individuals are more inclined towards the debt securities issued within the municipal market. These investors cannot make decisions without prior research and analysis. The same applies to investors looking for debt securities within the municipal market. Municipal research is the practice of understanding investment opportunities within a city, district, or state. It includes identifying upcoming projects that will require a large capital. Municipal research includes collecting data related to demographics, government entities, upcoming projects, and policies. It involves an assessment of the public facilities, as they might require modification. Sometimes, municipal researchers identify the need for a particular public service even before the local government.
Institutional investors and HNIs might not have the time to indulge in municipal research. For the same rationale, they rely on municipal research services offered by third parties. These third parties have a dedicated team of investment analysts to keep a check on investment opportunities within the municipal market. Here’s why municipal research services are essential for investors:
Credit analysis of the government entity
Government-backed securities are less vulnerable to credit risks. However, it does not mean investors will not measure the issuer’s creditworthiness before buying municipal securities. Local governments with a poor credit history might fail to offer interest on debt securities. With the help of research analysts, you can identify profitable government securities for investment.
Understanding legal considerations
There are several legalities associated with government-backed debt securities. Research analysts can help investors understand the legalities and risks associated with debt securities. Before indulging in a deal with a government entity, investors must understand the legal points completely.
Help with industry-specific research
Some investors might prefer to invest in specific industry sectors for high returns. Many investors prefer to invest in specific sectors for portfolio alignment and diversification. With the help of researchers, investors can understand industry-specific opportunities in the municipal market.
Due diligence and obligor screening
Municipal research services include due diligence and obligor screening. These processes can help identify the financial health of the issuer. Also, hidden details related to the issuer can be uncovered with due diligence and obligor screening.
In a nutshell
Investors cannot invest in municipal securities blindfolded. They need market reports, research insights, and analytics support to make informed decisions in the municipal market. A reliable third party with experienced municipal researchers can help investors make the right decisions. Choose municipal research now for improved decision-making!