There have been several innovations in the municipal zero coupon bond market in recent years.

Convertible Zero Coupon Municipal Bonds
These bonds start as zero coupon bonds and then, generally after eight to 15 years, convert to interest-paying bonds. They are ideally suited for individuals planning for retirement. During their working years, individuals can accumulate capital -- tax free -- so it is ready for them when they retire. Then, upon retirement, they can receive the income stream they need for living expenses.

Stripped Municipals
Municipal bonds which pay interest semiannually can be separated (i.e., stripped) into the corpus and the coupons. The cash flow of the coupons is repackaged into stripped municipals with a greater variety of maturities -- from six months to 30 years. Like zeros, stripped municipals are issued at a deep discount from face value and are available in a wide range of credit quality.