California municipal bond funds invest in municipal debt obligations of issuers from the state. It provides the state’s investors stable income that is exempted from Federal and California income tax. Meanwhile, municipal bonds, informally called “munis” are debt securities issued by state and local governments to borrow money. These are preferred by investors seeking a steady stream of tax free income in a choppy market. Munis come with lower yields compared to taxable bonds. However, they fetch better returns for investors in high tax brackets if we consider after-tax returns.
Below we share with you 5 top-rated California muni bond mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and we expect it to outperform its peers in the future. To view the Zacks Rank and past performance of all muni bond mutual funds, investors can click here to see the complete list of muni bond funds .
Dreyfus California AMT-Free Municipal Bond Z (DRCAX - Free Report) invests a major portion of its assets in municipal debt securities that are expected to pay interest free from federal and California state income taxes. DRCAX mainly focuses on acquiring investment-grade securities that are rated not below Baa/BBB. The Dreyfus California AMT-Free Municipal Bond Z fund is non-diversified and has returned 3.6% in the past one year.
DRCAX has an expense ratio of 0.71% compared to the category average of 0.86%.
Franklin California Tax-Free Income A (FKTFX - Free Report) seeks high tax exempted income. FKTFX invests the lion’s share of its assets in municipal securities that are rated investment-grade and income from which is exempted from federal alternative minimum tax, and from California personal income taxes. FKTFX may invest not more than 20% of its assets that are subject to the federal alternative minimum tax. A maximum of 35% of FKTFX’s assets may be invested in securities of the U.S. territories. The Franklin CA Tax-Free Income A fund has returned 3.6% in the past one year.
John S. Wiley is one of the fund managers of FKTFX since 1991.
Invesco California Tax-Free Income A (CLFAX - Free Report) invests heavily in investment grade California municipal securities that provide income free from federal and California state income taxes. CLFAX may also invest a maximum of 20% of its assets in securities that are rated below investment grade or “junk” bonds. The Invesco CA Tax-Free Income A fund has returned 3.9% in the past one year.
As of September 2015, CLFAX held 226 issues, with 1.84% of its assets invested in Long Beach Calif Fing Auth 6%.
American Century California Long-Term Tax-Free A seeks high tax free current income with safety of principal. ALTAX invests a large chunk of its assets in bonds issued by different entities including municipalities in California and U.S. territories. ALTAX mainly invests in securities that are expected to provide return exempted from federal and California income taxes. ALTAX is expected to invest in securities with maturity durations of more than seven years and maintains a weighted average maturity of more than 10 years for the portfolio. The American Century CA Long-Term Tax-Free A fund has returned 3% in the past one year.
ALTAX has an expense ratio of 0.72% compared to the category average of 0.86%.
Franklin California Insured Tax-Free Income Advisor invests the majority of its assets in securities that pay interest free from the federal alternative minimum tax and California personal income taxes. FZCAX invests a minimum of 65% of its assets in securities issued by municipalities in California. FZCAX may invest not more that 35% of its assets in municipal securities of the U.S. territories. The Franklin CA Insured Tax-Free Income Advisor fund has returned 4.6% in the past one year.
As of September 2015, FZCAX held 255 issues, with 4.1% of its assets invested in Alameda Corridor Transn Auth 5.25%.
To view the Zacks Rank and past performance of all muni bond mutual funds, investors can click here to see the complete list of muni bond funds .
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at https://www.zacks.com/funds.