PZA ETF Pays 3.9% Monthly Tax-Free Income With 18 Years of Perfect Reliability: What Investors Should Know

January 29, 2026 — A municipal-bond ETF called Invesco National AMT-Free Municipal Bond ETF (PZA) is getting attention for one simple reason: it aims to provide steady, federally tax-free income paid monthly. The fund’s recent yield has been around 3.9%, and it has a long history of continuing its monthly distributions since it launched in 2007.

But “tax-free income” doesn’t mean “risk-free.” Like all bond funds, PZA’s price can rise and fall—especially when interest rates move. Below is a detailed, easy-to-follow rewrite of the story, plus extra context to help you understand what PZA is, why it may matter for higher earners, and what trade-offs come with a municipal bond ETF.

What PZA Is and Why It Exists

PZA is an exchange-traded fund (ETF) that invests mainly in municipal bonds—often called “munis.” These are bonds issued by states, cities, counties, and local agencies to help pay for public projects like schools, roads, bridges, water systems, and hospitals.

When you buy a municipal bond, you’re essentially lending money to that public entity. In return, you receive interest payments. The big draw is that many muni-bond interest payments are exempt from U.S. federal income tax. That’s the core reason munis are popular with investors who pay higher tax rates.

PZA packages thousands of these bonds into one tradable fund. Instead of picking individual munis one-by-one, investors can buy a single ETF share and gain broad exposure.

“AMT-Free” Matters More Than Many People Think

PZA’s full name includes a key phrase: AMT-Free. AMT stands for the Alternative Minimum Tax, which is a separate tax system that can apply to certain taxpayers. Some municipal bonds generate interest that can be counted under AMT rules. That can surprise people who expected all muni income to be fully tax-free.

PZA is designed to focus on municipal bonds whose interest is generally not subject to AMT. In plain terms, it aims to make the “tax-free” benefit more dependable for investors who might be exposed to AMT.

How PZA Produces Monthly Income

Unlike a stock dividend that depends on a company’s profits, a muni-bond ETF’s income comes mainly from bond interest. PZA collects interest from the bonds it owns, subtracts fund expenses, and then distributes the remaining income to shareholders—typically every month.

That’s why investors who want predictable cash flow often look at bond funds, especially those that pay monthly. A monthly schedule can be useful for budgeting, reinvesting, or matching household expenses.

The Fund’s Size and Portfolio Approach

In the story, PZA is described as managing about $3.3 billion in assets and holding a diversified portfolio of municipal bonds across the United States.

Diversification is a big deal for municipal bonds. A single city or agency can run into financial trouble, but a portfolio that spreads exposure across many issuers helps reduce the damage if any one borrower struggles. In other words, the goal is that no single default should “sink the ship.”

The 3.9% Yield: Why “Tax-Free” Changes the Math

PZA’s yield has been around 3.9% with monthly distributions, according to the referenced article.

To understand why that matters, you need one more idea: tax-equivalent yield. If your bond interest is taxable, the government takes a portion. But if your bond interest is federally tax-exempt, you keep more of what you earn.

For example, another related 24/7 Wall St. piece notes that for investors in the top 37% federal bracket, a 3.9% tax-free yield can feel more like earning a much higher taxable yield—because you’re not losing a chunk to federal tax.

Simple way to think about it: If two people earn the same “headline yield,” the person paying more tax may end up with less money in their pocket. So a lower-looking tax-free yield can sometimes compete with a higher-looking taxable yield.

Important Reminder About “Tax-Free”

“Tax-free” here generally refers to U.S. federal income tax. State and local tax rules can vary. Also, individual tax situations vary a lot. If you’re unsure, it’s smart to ask a qualified tax professional how muni income may apply to you.

18 Years of “Perfect Reliability”: What That Really Means

The headline claim is that PZA has delivered monthly distributions reliably since it launched in 2007, without missing a payment.

That sounds impressive—and it is meaningful for income-focused investors. But it’s also important to be precise about what “reliability” means in bond-fund land:

• It does not mean the ETF price never falls. Bond fund prices can drop when rates rise.
• It does not mean the payment amount never changes. Distributions can go up or down depending on rates, portfolio turnover, and other factors.
• It mainly means the fund has continued to pay something each month. For many income investors, that consistency matters.

The article highlights that PZA’s distribution levels have moved with interest-rate cycles. It also notes that 2025 distributions recovered and even rose above a prior peak from 2016.

In plain English: when rates were very low, the income that bonds could generate was also lower. As rates rose, newly issued bonds and reinvested cash flows could offer higher yields, supporting stronger distributions over time.

Bond ETFs Have a Built-In Trade-Off: Yield vs. Price

Here’s the part that trips people up: when interest rates rise, bond prices tend to fall. This is not a “maybe.” It’s a basic bond relationship.

Why? Imagine you own an older bond paying a lower interest rate. If new bonds come out paying higher rates, investors would rather buy the newer, higher-paying bonds. To compete, the older bond’s price usually drops until the overall return becomes competitive again.

What the Recent Performance Signals

The article mentions that over the past year PZA gained about 2.7%, while over a five-year period it showed a decline of about 1.1%—reflecting the pressure bonds faced when rates surged in 2022–2023.

This is a key reality check: you can receive monthly income and still experience periods where the ETF’s market price drops. That’s why investors often talk about total return, which combines:

• Income return (distributions you receive)
• Price return (the ETF price going up or down)

If you hold a bond fund for income, you may care more about steady distributions. But price still matters—especially if you might need to sell shares during a down period.

PZA vs. MUB: A Quick Comparison That Explains the Debate

The story compares PZA with another popular muni ETF: iShares National Muni Bond ETF (MUB). The basic comparison goes like this:

• Yield: PZA around 3.9% vs. MUB around 3.4% (in the article’s snapshot).
• Fees: PZA expense ratio about 0.28% vs. MUB around 0.05%.

So PZA appears to offer more income, but it also charges higher fees. Investors then have to decide if the extra yield is worth the extra cost—especially if you plan to hold the fund for years.

Why Fees Matter in Bond ETFs

Bond yields are often lower than stock returns over long periods. That means fees can take a bigger bite. Even a fraction of a percent can matter because bond investors are often trying to protect steady income, not chase big upside.

On the other hand, some investors may accept higher fees if the fund provides a feature they strongly value—like AMT-free positioning or a certain risk profile. The key is to look at the whole package, not just one number.

What “Investment-Grade” Means for Municipal Bonds

PZA is described as holding investment-grade municipal bonds.

Investment-grade generally means that major rating agencies view the issuers as having a strong ability to repay. It’s not a promise that nothing can go wrong, but it usually indicates lower credit risk compared with lower-rated or “high-yield” municipal bonds.

This matters because municipal bond investors often care about stability. Many people buy munis because they prefer a smoother ride than what stocks can deliver.

Who PZA May Be Best For (and Who It May Not Fit)

PZA tends to make the most sense for investors who:

• Pay higher federal income taxes and want federally tax-exempt income
• Prefer monthly distributions for budgeting or reinvesting
• Want diversification across many municipal issuers instead of picking single bonds
• Care about AMT exposure and prefer an AMT-free muni approach

It may be less useful for investors who:

• Are in lower tax brackets where the tax benefit is smaller
• Hold fixed income mainly inside tax-advantaged accounts (like certain retirement accounts), where the “tax-free” angle may not provide the same benefit
• Need a fund with the lowest possible fee and are willing to accept a different structure

There’s no one “right” muni ETF for everyone. The best choice often depends on your tax situation, time horizon, and comfort with interest-rate swings.

Risks to Understand Before Buying a Municipal Bond ETF

Municipal bonds are often viewed as conservative, but they still carry real risks. Here are the big ones, explained simply:

1) Interest Rate Risk

This is the headline risk for bond funds. When rates rise quickly, bond prices can drop. If you might need to sell your ETF shares during a rate spike, you could lock in losses.

2) Credit Risk

Even governments can face financial stress. While investment-grade munis have historically had low default rates, “low” does not mean “zero.” A diversified fund helps, but it doesn’t erase the risk.

3) Inflation Risk

If inflation rises, the “real” value of fixed interest payments can shrink. You may still receive the same dollars, but those dollars might buy less.

4) Liquidity and Market Risk

ETFs trade on an exchange. In normal times, that’s convenient. In stressed markets, liquidity can tighten and prices can swing more than expected.

5) Policy and Tax Rule Risk

Tax policy can change. While muni interest has a long history of federal tax exemption, future policy shifts could affect the attractiveness of muni income for certain investors.

How to Evaluate PZA Like a Pro (Without Being a Pro)

You don’t need a finance degree to ask smart questions. Here’s a practical checklist you can use when reading about PZA—or any muni ETF:

• Yield: Is the yield competitive for the risk you’re taking?
• Fees: How does the expense ratio compare to similar ETFs?
• Distribution history: Has it paid consistently, and how much does the amount vary?
• Interest-rate sensitivity: How volatile has the price been during rate changes?
• Fit with your taxes: Would you actually benefit from federal tax-exempt income?
• Time horizon: Are you investing for steady income over years, or might you need to sell soon?

Also consider reviewing official fund information directly from the issuer. For example, you can read more from Invesco here:Invesco’s official PZA fund page.

Why This Story Matters Right Now

The renewed attention on PZA is partly about timing. In recent years, interest rates moved sharply. That hurt bond prices—but over time, higher rates can also create a path toward stronger income as older bonds mature and portfolios reinvest at newer, higher yields.

The article points to that dynamic by highlighting that distributions in 2025 climbed and surpassed a previous peak from 2016.

For income investors, that’s the story in one sentence: price volatility can be painful in the short run, but higher yields can improve the income picture in the longer run.

Bottom Line

PZA is being promoted as a monthly income option with a yield around 3.9% and a distribution record that has remained intact since 2007.

Its biggest advantage is simple: federally tax-exempt monthly income from a broad portfolio of municipal bonds—plus an AMT-free approach designed to avoid a tax surprise for certain high earners.

Its biggest trade-offs are also simple: higher fees than some peers and the unavoidable reality that bond ETF prices can drop when rates rise.

Not financial advice: This is an informational rewrite and explanation. Before investing, consider your risk tolerance and taxes, and talk to a qualified professional if needed.

#PZA #MunicipalBonds #TaxFreeIncome #ETFInvesting #SlimScan #GrowthStocks #CANSLIM