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Mutual Fund Commentary

Debt securities will always be the natural choice for risk-averse investor because this category of instruments provides regular income flow at low levels of risk. Income from regular dividends helps to ease the pain caused by plunge in stock prices. When considering the safety of capital invested, municipal bond mutual funds are second only to those invested in government securities. In addition, the interest income earned form these securities are exempt from federal taxes and in many cases from state taxes as well.

Below we will share with you 4 top-rated municipal bond mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect these mutual funds to outperform their peers in the future. Investors can click here to see the complete list of funds.

Dreyfus AMT-Free Municipal Bond A (DMUAX - Free Report) seeks growth of income and capital. DMUAX invests more than 65% of its assets in municipal debt securities that are rated A or higher. The fund may also invest a large chunk of its assets in securities that are expected to provide income free from federal income tax. Dreyfus AMT-Free Municipal Bond A is a non-diversified fund and has a three-year annualized return of 5.9%.

DMUAXhas an expense ratio of 0.70% compared to the category average of 0.81%.

American High-Income Municipal Bond F-1 (ABHFX - Free Report) invests the large chunk of its assets in debt securities whose interest is exempted from regular federal income tax. ABHFX may invest in bonds having interest which is a tax-preference item for the purpose of the federal alternative minimum tax. American High-Income Municipal Bond F-1 has a three-year annualized return of 8.4%.

Neil Langberg is one of the fund managers of ABHFX since 1994.

Invesco High Yield Muni Y (ACTDX - Free Report) seeks current income exempted from federal tax. ACTDX invests the majority of its assets in municipal securities, with more than 75% of its investment are made in municipal securities with high yield. Invesco High Yield Muni Y has a three-year annualized return of 10.2%.

ACTDXhas an expense ratio of 0.61% compared to the category average of 0.94%.

PIMCO High Yield Municipal Bond A (PYMAX - Free Report) seeks current income that is free from federal income tax. PYMAX may invest in investment grade municipal bonds and may invest not more than 30% of its assets in "private activity" bonds. PIMCO High Yield Municipal Bond A has a three-year annualized return of 8.7%.

As of June 2016, PYMAX held 327 issues, with 2.72% of its assets invested in Texas Mun Gas Acquisition & Su Sr 6.25%.

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

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