An Exempt-Interest Dividend is a distribution from a mutual fund that is not subject to federal income tax. Exempt-interest dividends are often associated with mutual funds that invest in municipal bonds. These dividends offer investors a way to earn tax-free income, which can be beneficial for those in high tax brackets.Municipal bonds are issued by state and local governments to finance public projects such as schools, hospitals, and infrastructure improvements. The interest paid on these bonds is exempt from federal taxes, and sometimes state and local taxes as well. This makes them an attractive investment for people who want to minimize their taxable income.Exempt-interest dividends can be a valuable source of income for retirees or other investors who need regular payments but don't want to pay taxes on them. By investing in municipal bond funds, they can get regular distributions without having to worry about the extra burden of paying taxes on them each year.
