Back to top

Image: Bigstock

Bet on These 3 Municipal Bond Mutual Funds for Healthy Gains

Read MoreHide Full Article

Mutual funds having significant exposure to municipal bonds, also known as “munis,” are excellent choices for risk-averse investors looking to derive stable tax-free returns. These funds seek to provide returns with a low level of risk by investing in municipal debt securities issued by state and local governments.

These securities are believed to provide steady returns exempted from federal taxes and in many cases from state taxes as well, which is why investors prefer these securities in a choppy market. Though munis are expected to provide lower yields than taxable bonds, they fetch better returns for investors in high tax brackets if we consider after-tax returns.

Below we share with you four top-ranked municipal bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of funds.

American High-Income Municipal Bond F-1 ABHFX seeks growth of income, which is free from regular federal income tax. ABHFX invests a large chunk of its assets in debt securities, interest from which is exempted from regular federal income tax. ABHFX may also invest more than one-half of its assets in debt securities rated Baa1 or lower or BBB+ or lower. American High-Income Municipal Bond F-1 has returned 2.9% in the past year. 

As of June 2018, ABHFX held 2,157 issues, with 0.63% of its assets invested in DISTRICT COLUMBIA TOB SETTLEMENT FING CORP 0%.

MFS Municipal Income A1 MMIDX invests a majority of its assets in municipal securities that are believed to provide interest income free from federal income tax. MMIDX seeks returns through tax-free income and growth of capital. The fund may invest more than one-fourth of its assets in those municipal securities that are related to healthcare, education, utilities and housing. MFS Municipal Income A1 has one-year annualized returns of 1.5%.

Jason R. Kosty is one of the portfolio managers of MMIDX since 2015.

Nuveen California Municipal Bond A (NCAAX - Free Report) invests a huge 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 returned 1.2% in the past year. 

NCAAX has an expense ratio of 0.75% compared with the category average of 0.89%.

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

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Nuveen CA Muni Bond A (NCAAX) - free report >>