Any investors hoping to find a Muni - Bonds fund could think about starting with T. Rowe Price Tax Free High Yield Retail (PRFHX Quick QuotePRFHX - Free Report) . PRFHX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

PRFHX is one of many Muni - Bonds funds to choose from. Muni - Bonds funds invest in debt securities issued by states and local municipalities, which are typically used to pay for infrastructure construction, schools, and other government functions. These securities can be backed by taxes (revenue bonds), but others are known as "general obligation" and are not necessarily backed by a defined source. These bonds are especially attractive because of their inherent tax benefits.

History of Fund/Manager

T. Rowe Price is responsible for PRFHX, and the company is based out of Baltimore, MD. T. Rowe Price Tax Free High Yield Retail debuted in March of 1985. Since then, PRFHX has accumulated assets of about $1.32 billion, according to the most recently available information. The fund's current manager, James M. Murphy, has been in charge of the fund since January of 2001.

Performance

Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 2.24%, and is in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 7.12%, which places it in the middle third during this time-frame.

It is important to note that the product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund's [%] sale charge. If sales charges were included, total returns would have been lower.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. Over the past three years, PRFHX's standard deviation comes in at 7.35%, compared to the category average of 10.54%. Looking at the past 5 years, the fund's standard deviation is 7.52% compared to the category average of 11.41%. This makes the fund less volatile than its peers over the past half-decade.

Bond Duration

Modified duration is a measure of a given bond's interest rate sensitivity, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.

For investors who think interest rates will rise, this is an important factor to consider. PRFHX has a modified duration of 7.49, which suggests that the fund will decline 7.49% for every hundred-basis-point increase in interest rates.

Income

Since income is, of course, a big reason for purchasing a fixed income security, it is always important to consider the fund's average coupon. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 4.91% means that a $10,000 investment should result in a yearly payout of $491.

For those seeking a strong level of current income, a higher coupon is typically good news. However, it could pose a reinvestment risk if rates are lower in the future when compared to the initial purchase date of the bond. Income is only one part of the bond picture, investors also need to consider risk relative to broad benchmarks.

With a beta of 0.68, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, PRFHX has a positive alpha of 1.47 , which measures performance on a risk-adjusted basis.

Ratings

Investors should also consider a bond's rating, which is a grade "AAA" to "D" given to a bond that indicates its credit quality. With this letter scale in mind, PRFHX has 29.71% in medium quality bonds, with ratings of "A" to "BBB". The fund's junk bond component-bonds rated "BB" or below-is at 18.12%, giving PRFHX an average quality of BBB. This means that it focuses on medium quality securities.

However, it is worth noting that 43% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, PRFHX is a no load fund. It has an expense ratio of 0.65% compared to the category average of 0.92%. So, PRFHX is actually cheaper than its peers from a cost perspective.

While the minimum initial investment for the product is $2,500, investors should also note that each subsequent investment needs to be at least $100.

Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.

Bottom Line

Overall, T. Rowe Price Tax Free High Yield Retail ( PRFHX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, T. Rowe Price Tax Free High Yield Retail ( PRFHX ) looks like a good potential choice for investors right now.

For additional information on this product, or to compare it to other mutual funds in the Muni - Bonds, make sure to go to www.zacks.com/funds/mutual-funds for additional information. And don't forget, Zacks has all of your needs covered on the equity side too! Make sure to check out Zacks.com for more information on our screening capabilities, Rank, and all our articles as well.