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Mutual Fund Commentary

Investors interested in tax-free stable income may consider municipal bond mutual funds or “munis”. Though munis come with lower yields than taxable bonds, they fetch better returns in high tax brackets, if we consider after-tax returns. So, municipal bonds are preferred by investors seeking a steady stream of tax-free income in a volatile market.

California municipal bond mutual funds form one of the main segments in this category. These funds invest in municipal debt obligations of the issuers from the state. These mutual funds are expected to offer the state’s investors stable income which is not only exempted from federal income tax but also from California state income tax.

Below we share with you three top-rated California muni bond mutual funds. 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 muni bond funds.

American Century California High Yield Muni A (CAYAX - Free Report) invests a large chunk of its assets in municipal securities that are believed to provide interest income free from federal and California income taxes. CAYAX focuses on acquiring California municipal securities that are rated below investment grade. The fund may also invest in securities that are unrated. American Century California High Yield Muni A is a non-diversified fund and has a three-year annualized return of 8.1%.

CAYAX has an expense ratio of 0.75% as compared to the category average of 0.88%.

Invesco California Tax-Free Income A (CLFAX - Free Report) seeks return by investing 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. Invesco CA Tax-Free Income A has a three-year annualized return of 7%.

Robert Stryker is one of the fund managers of CLFAX since 2009.

Northern CA Intermediate Tax-Exempt (NCITX - Free Report) invests majority of its assets in debt instruments that are exempted from federal as well as California state income tax. NCITX seeks return through tax-exempted income. It is a non-diversified fund. Northern CA Intermediate Tax-Exempt has a three-year annualized return of 4.9%.

NCITX has an expense ratio of 0.45% as compared to the category average of 0.85%.

Nuveen California Municipal Bond A (NCAAX - Free Report) invests a major portion of its assets in municipal debt obligations that provide interest income exempted from federal and California personal income tax. NCAAX invests in securities including bonds of the State of California or its affiliates, and debt obligations issued by the U.S. government. Nuveen California Municipal Bond A has a three-year annualized return of 7.9%.

As of Aug 2016, NCAAX held 399 issues, with 3.21% of its assets invested in Los Angeles Calif Cmnty Colleg Go Bds 5%.

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.

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