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Municipal bonds, or "muni bonds," comprise debt securities issued by various states, cities, counties and other governmental entities to raise money to build roads, schools and a host of other projects for public good. These municipal securities regularly pay interest payments, usually semi-annually, and pay the original investment or principal amount at the time of maturity. Interest paid on such bonds is generally exempted from federal taxes making them especially attractive to people in higher income tax brackets.
Thus, risk-averse investors looking to earn a regular tax-free income may consider municipal bonds mutual funds. These mutual funds are believed to provide regular income while protecting the capital invested. While mutual funds from this category seek to provide dividends more frequently than other bonds, they offer greater stability than those primarily focusing on equity and alternative securities.
Below, we share with you three municipal bond funds, namely, Invesco Limited Term Municipal Income Fund Class A2 (AITFX - Free Report) , Vanguard Short Term Tax Exempt Fund (VWSTX - Free Report) , and JPMorgan Tax Aware Real Return Fund (TXRAX - Free Report) . Each has earned 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 funds, their Zacks Rank and past performance.
Invesco Limited Term Municipal Income Fund Class A2 seeks income exempted from federal tax by investing most of its assets along with borrowings, if any, in investment-grade municipal debt securities that either pay interest that are excluded from gross income for federal income tax purposes, or do not produce income that will be considered an item of preference for purposes of the alternative minimum tax. AITFX advisors try to maintain a dollar-weighted average with effective portfolio maturity of five years or less.
Invesco Limited Term Municipal Income Fund Class A2 has five-year annualized returns of 0.8%. As of the end of May 2022, AITFX had 64.98% of its net assets invested in Miscellaneous Bonds.
Vanguard Short Term Tax Exempt Fund invests most of its net assets in municipal bonds within the top three credit ranking categories determined by nationally recognized rating agencies or by the advisors for comparable quality if unrated. VWSTX advisors expect to maintain a dollar-weighted average maturity of 1 to 2 years.
Vanguard Short Term Tax Exempt Fundhas three-year annualized returns of 0.2%. VWSTX has an expense ratio of 0.17% compared with the category average of 0.60%.
JPMorgan Tax Aware Real Return Fund seeks after-tax returns by investing most of its net assets in a portfolio of municipal securities whose interest payments are excluded from federal income tax. TXRAX creates inflation-protected instruments by investing in a combination of municipal securities along with inflation-linked derivatives such as Non-Seasonally Adjusted Consumer Price Index for all Urban Consumers (CPI-U) swaps.
JPMorgan Tax Aware Real Return Fund has three-year annualized returns of 0.7%.David P. Rooney has been the fund manager of TXRAX since March 2015.
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3 Municipal Bond Funds to Buy Amid High Inflation
Municipal bonds, or "muni bonds," comprise debt securities issued by various states, cities, counties and other governmental entities to raise money to build roads, schools and a host of other projects for public good. These municipal securities regularly pay interest payments, usually semi-annually, and pay the original investment or principal amount at the time of maturity. Interest paid on such bonds is generally exempted from federal taxes making them especially attractive to people in higher income tax brackets.
Thus, risk-averse investors looking to earn a regular tax-free income may consider municipal bonds mutual funds. These mutual funds are believed to provide regular income while protecting the capital invested. While mutual funds from this category seek to provide dividends more frequently than other bonds, they offer greater stability than those primarily focusing on equity and alternative securities.
Below, we share with you three municipal bond funds, namely, Invesco Limited Term Municipal Income Fund Class A2 (AITFX - Free Report) , Vanguard Short Term Tax Exempt Fund (VWSTX - Free Report) , and JPMorgan Tax Aware Real Return Fund (TXRAX - Free Report) . Each has earned 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 funds, their Zacks Rank and past performance.
Invesco Limited Term Municipal Income Fund Class A2 seeks income exempted from federal tax by investing most of its assets along with borrowings, if any, in investment-grade municipal debt securities that either pay interest that are excluded from gross income for federal income tax purposes, or do not produce income that will be considered an item of preference for purposes of the alternative minimum tax. AITFX advisors try to maintain a dollar-weighted average with effective portfolio maturity of five years or less.
Invesco Limited Term Municipal Income Fund Class A2 has five-year annualized returns of 0.8%. As of the end of May 2022, AITFX had 64.98% of its net assets invested in Miscellaneous Bonds.
Vanguard Short Term Tax Exempt Fund invests most of its net assets in municipal bonds within the top three credit ranking categories determined by nationally recognized rating agencies or by the advisors for comparable quality if unrated. VWSTX advisors expect to maintain a dollar-weighted average maturity of 1 to 2 years.
Vanguard Short Term Tax Exempt Fundhas three-year annualized returns of 0.2%. VWSTX has an expense ratio of 0.17% compared with the category average of 0.60%.
JPMorgan Tax Aware Real Return Fund seeks after-tax returns by investing most of its net assets in a portfolio of municipal securities whose interest payments are excluded from federal income tax. TXRAX creates inflation-protected instruments by investing in a combination of municipal securities along with inflation-linked derivatives such as Non-Seasonally Adjusted Consumer Price Index for all Urban Consumers (CPI-U) swaps.
JPMorgan Tax Aware Real Return Fund has three-year annualized returns of 0.7%.David P. Rooney has been the fund manager of TXRAX since March 2015.
To view the Zacks Rank and the past performance of all municipal bond funds, investors can click here to see the complete list ofmunicipal bond funds.
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