RiverNorth Flexible Municipal Income Fund, Inc. (RFM)

A closed-end fund pools money from investors and uses it to buy municipal bonds and other fixed-income securities whose interest payments are exempt from federal income tax — giving shareholders a pass-through tax benefit, steady income, and professional portfolio management in one bundle.

RiverNorth Flexible Municipal Income Fund, Inc. (RFM) does what its name says: it invests your money in municipal bonds — debt issued by states, cities, and local agencies — and pays you the interest, which arrives free from federal income tax. RFM trades on the stock exchange like any other company, but it is not a company in the traditional sense. It is a closed-end fund, a legal structure that pools investor capital, invests it according to a stated strategy, and returns the income and gains to shareholders.

The municipal bond angle

Municipal bonds (often called “munis”) are debt issued by governments and their agencies to raise money for projects: highways, schools, water systems, hospitals, sewage treatment plants. The federal government lets the interest on these bonds slide past your federal tax bill — a subsidy designed to make it cheaper for local governments to borrow. That tax break means municipal bonds typically offer lower yields than taxable corporate bonds of similar quality, but for a high-income earner in a steep tax bracket, the effective after-tax yield beats the headline number.

RFM’s strategy is flexible: it invests not just in individual municipal bonds, but also in closed-end funds that themselves hold municipal bonds, and in municipal exchange-traded funds. This layer of indirection — owning funds that own bonds — gives RFM access to specialized managers and different risk profiles without having to staff a full portfolio-management team internally. It is one way a smaller fund stays competitive with larger rivals.

How closed-end funds work

When RFM was founded in 2019, it raised a fixed amount of capital in its initial public offering. Unlike open-end mutual funds, which expand and shrink as investors buy and sell shares, RFM’s share count stays the same. If you want to buy RFM shares, you buy them on the stock exchange from someone else willing to sell. If you want to exit, you sell them on the exchange to someone else. The fund itself does not cash you in; the market does.

This structure changes how closed-end funds behave. Because supply and demand for shares is finite, the stock price can drift above or below the fund’s actual net asset value per share — the true underlying value of the bonds and securities it holds. Sometimes RFM trades at a discount to its net asset value, meaning the market is pessimistic about the fund’s holdings or strategy. Sometimes it trades at a premium, meaning investors are willing to pay extra for its brand, track record, or specialized access. Understanding whether you are buying at a discount or premium is part of the investor’s job.

The income stream

RFM’s chief appeal is current income exempt from federal tax. The fund regularly distributes the interest it collects from its municipal holdings to shareholders, usually monthly or quarterly. The distribution rate fluctuates with the yields of the underlying bonds and with market conditions. When interest rates fall, existing bond values rise, and RFM’s securities appreciate — but new income from reinvested proceeds drops. When rates rise, the opposite happens. Long-term performance depends on both the interest collected and any capital appreciation from bond price moves.

Credit and interest rate risks

Municipal bonds are not risk-free. States and cities can face fiscal stress, though outright default is rare. Rising interest rates erode bond prices, so RFM’s net asset value will decline if the Federal Reserve tightens policy aggressively. RFM’s “flexible” approach — its ability to own funds that own bonds rather than individual bonds — is meant to adapt to different rate environments, but flexibility does not eliminate the underlying exposure to credit and duration risk that comes with any bond portfolio.