7 Best Tax-Free Municipal Bond Funds
Investing in tax-free municipal bond funds can be a great way to earn tax-free income while also supporting the development of local communities. These bonds are issued by state and local governments to fund projects such as schools, hospitals, roads, and other infrastructure. The interest paid on these bonds is typically exempt from federal taxes, and in some cases, state and local taxes as well.
There are many different types of tax-free municipal bond funds available to investors, each with its own investment strategy and portfolio of bonds. In this blog, we'll take a closer look at seven of the best tax-free municipal bond funds currently available.
Vanguard Tax-Exempt Bond Index Fund (VTEBX)
The Vanguard Tax-Exempt Bond Index Fund is a popular choice for investors looking for low-cost exposure to the tax-free municipal bond market. The fund seeks to track the performance of the S&P National AMT-Free Municipal Bond Index, which includes a broad range of investment-grade municipal bonds from across the United States.
As of February 28, 2023, the fund had total net assets of $108.3 billion and a yield of 1.28%. The fund has a low expense ratio of 0.09%, which makes it an attractive option for investors looking to minimize costs.
BlackRock National Municipal Fund (MDNLX)
The BlackRock National Municipal Fund is a well-diversified fund that invests primarily in investment-grade municipal bonds issued by U.S. states and territories. The fund aims to provide investors with a high level of income that is exempt from federal income taxes, as well as state and local income taxes in many states.
As of February 28, 2023, the fund had total net assets of $12.1 billion and a yield of 1.34%. The fund has a relatively low expense ratio of 0.49%, which is competitive with other actively managed municipal bond funds.
T. Rowe Price Tax-Free High Yield Fund (PRFHX)
The T. Rowe Price Tax-Free High Yield Fund is a high-yield municipal bond fund that seeks to provide investors with tax-free income while also maintaining a high level of credit quality. The fund invests primarily in high-yield municipal bonds, which can offer higher yields than investment-grade bonds but also carry higher risks.
As of February 28, 2023, the fund had total net assets of $3.3 billion and a yield of 2.68%. The fund has an expense ratio of 0.56%, which is competitive with other high-yield municipal bond funds.
Fidelity Tax-Free Bond Fund (FTABX)
The Fidelity Tax-Free Bond Fund is an actively managed municipal bond fund that invests primarily in investment-grade municipal bonds issued by U.S. states and territories. The fund aims to provide investors with tax-free income while also preserving capital and maintaining a high level of credit quality.
As of February 28, 2023, the fund had total net assets of $10.8 billion and a yield of 1.24%. The fund has a relatively low expense ratio of 0.32%, which makes it an attractive option for investors looking for an actively managed municipal bond fund with low costs.
Nuveen High Yield Municipal Bond Fund (NHMAX)
The Nuveen High Yield Municipal Bond Fund is a high-yield
municipal bond fund that seeks to provide investors with tax-free income while
also maintaining a high level of credit quality. The fund invests primarily in
high-yield municipal bonds, which can offer higher yields than investment-grade
bonds but also carry higher risks.
As of February 28, 2023, the fund had total net assets of
$3.3 billion and a yield of 2.94%. The fund has an expense ratio of 0.74%,
which is slightly higher than some other high-yield municipal bond funds, but
still competitive in its category.
PIMCO Intermediate Municipal Bond Active ETF (MUNI)
The PIMCO Intermediate Municipal Bond Active ETF is an exchange-traded fund (ETF) that seeks to provide investors with tax-free income while also preserving capital and maintaining a moderate level of credit risk. The fund invests primarily in intermediate-term municipal bonds, which can provide a balance between yield and interest rate risk.
As of February 28, 2023, the fund had total net assets of $1.3 billion and a yield of 1.25%. The fund has a relatively low expense ratio of 0.35%, which is competitive with other actively managed municipal bond ETFs.
Schwab Tax-Free Bond Fund (SWNTX)
The Schwab Tax-Free Bond Fund is an actively managed municipal bond fund that invests primarily in investment-grade municipal bonds issued by U.S. states and territories. The fund aims to provide investors with tax-free income while also maintaining a high level of credit quality.
As of February 28, 2023, the fund had total net assets of
$3.2 billion and a yield of 1.11%. The fund has a low expense ratio of 0.34%,
which makes it an attractive option for investors looking for an actively
managed municipal bond fund with low costs.
Here are the seven best municipal bond funds to buy today.
- Vanguard Tax-Exempt Bond Index Fund (VTEBX)
- BlackRock National Municipal Fund (MDNLX)
- T. Rowe Price Tax-Free High Yield Fund (PRFHX)
- Fidelity Tax-Free Bond Fund (FTABX)
- Nuveen High Yield Municipal Bond Fund (NHMAX)
- PIMCO Intermediate Municipal Bond Active ETF (MUNI)
- Schwab Tax-Free Bond Fund (SWNTX)
Conclusion
In conclusion, tax-free municipal bond funds can provide investors with a source of tax-free income while also offering potential capital preservation benefits. The seven funds discussed in this article are all strong options for investors looking to invest in this asset class, each with their own unique investment objectives, risk profiles, and fee structures.
Investors interested in tax-free municipal bond funds should
carefully consider their investment goals, risk tolerance, and the overall
market environment before making any investment decisions. They should also
conduct their own research and consult with a financial advisor to determine
which fund or funds best align with their investment objectives and risk
preferences.