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Grab These 3 Municipal Bond Funds for Risk Reduction

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Municipal bonds, or "muni bonds," comprise debt securities issued by various states, cities, counties and other governmental entities to raise money to build roads, schools and a host of other projects for public good. These municipal securities make regular interest payments, usually semi-annually, and the original investment or principal amount at the time of maturity. Interest paid on such bonds is generally exempted from federal taxes, making them especially attractive to people in higher income tax brackets.

Thus, risk-averse investors looking to earn a regular tax-free income may consider municipal bond mutual funds. These mutual funds are believed to provide regular income while protecting the capital invested. While mutual funds from this category seek to provide dividends more frequently than other bonds, they offer greater stability than those primarily focusing on equity and alternative securities.

Below, we share with you three top-ranked municipal bond funds, viz., Colorado BondShares A Tax-Exempt (HICOX - Free Report) , Invesco Limited Term Municipal Income (AITFX - Free Report) and American Funds Tax-Aware Conservative Growth and Income Portfolio (TAIAX - Free Report) . Each has a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of municipal bond funds.

Colorado BondShares A Tax-Exempt fund seeks opportunities for capital appreciation. HICOX invests in tax-exempt bonds and other tax-exempt securities, including tax-exempt notes and tax-exempt municipal leases of the State of Colorado, its political subdivisions, municipalities and public authorities.

Colorado BondShares A Tax-Exempt fund has three-year annualized returns of 1.5%. Fred R. Kelly has been one of the fund managers of HICOX since 1990.

Invesco Limited Term Municipal Income fund seeks to generate a high level of tax-exempt income. AITFX invests most of its assets in securities that generate income not subject to regular tax rules or the alternative minimum tax rules.

Invesco Limited Term Municipal Income fund has three-year annualized returns of 0.5%. As of the end of August 2023, AITFX held 70.3% of its net assets in miscellaneous bonds.

American Funds Tax-Aware Conservative Growth and Income Portfolio invests in a variety of funds from the United States in different combinations and weights. The funds that it invests in are characterized to generate income from their investments and may include growth-and-income, equity-income, balanced and fixed-income funds. TAIAX also focuses on dividend-paying stocks and invests a portion in emerging markets.

American Funds Tax-Aware Conservative Growth and Income Portfolio has three-year annualized returns of 4.1%. TAIAX has an expense ratio of 0.34% compared with the category average of 0.72%.

To view the Zacks Rank and the past performance of all municipal bond funds, investors can click here to see the complete list of municipal bond funds.

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