California to Let Small Investors Ring Up Bonds : Securities: The tax-free fund may be arranged over the phone. Proceeds will be used for school construction statewide.

California will let small investors buy low-priced tax-exempt state bonds basically over the phone, under a plan announced Wednesday by Treasurer Kathleen Brown.

Through the new CalBond Tax-Free Fund, investors can buy “shares” in pools of state general obligation bonds that will be offered for sale on March 31. Minimum investment: $250.

The bonds will be “zero-coupon” securities, meaning all interest earned is paid when the bonds mature, in eight, 10, 12, 15 or 18 years.

That means they won’t be attractive to savers who need current income, but rather are aimed at investors saving for future events, such as college expenses.

Yields on the bonds won’t be set until the sale on March 31. Current annual yields on long-term California bonds range from 4.5% to 6%, generally.

Because the interest is exempt from federal and state income tax, state bond yields are equivalent to taxable bond yields of 7% to 11%, depending on your tax bracket. That should make these securities attractive to savers who otherwise might buy stocks or Treasury bonds as long-term investments.

Brown said her goal was to make tax-free bonds “available to the average Californian.” But she cautioned that these are “buy and hold” securities, and that once set, the interest return won’t change for the life of the bonds. Proceeds from the bonds will fund school construction statewide.

One aspect of the program likely to please both small investors and busy securities brokers: Buyers making very small purchases can bypass brokerages.

All buyers must call a brokerage for an application, but if buying less than $15,000 in bonds, the application can be returned directly to the fund sponsor, Concord Financial.

For purchases greater than $15,000, a buyer must go through a broker and pay a 2.5% commission.

For phone numbers of banks and brokerages that are mailing applications and information, investors can call 800-332-3836.