Buy These 3 Municipal Bond Funds for Steady Returns
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 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 top-ranked municipal bondfunds, viz., JPMorgan Tax Aware Real Return Fund TXRAX, Colorado BondShares HICOX and Invesco Limited Term Municipal Income Fund AITFX. 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 municipal bond funds.
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.
JPMorgan Tax Aware Real Return Fund has three-year annualized returns of 1.3%. As of July 2022, TXRAX had 45.1% of its assets invested in Total Misc. Bonds.
Colorado BondShares invests the majority of its net assets in tax-exempt bonds and other tax-exempt securities. HICOX usually attempts to invest all of its net assets plus any borrowings for investment purposes.
Colorado BondShares has three-year annualized returns of 0.9%. Fred R. Kelly Jr.has been one of the fund managers of HICOX since 1990.
Invesco Limited Term Municipal Income Fund seeks income exempted from federal tax by investing most of its assets 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 has five-year annualized returns of 1.3%. AITFX has an expense ratio of 0.33% compared with the category average of 0.60%.
To view the Zacks Rank and the past performance of all municipal bondfunds, investors can click here to see the complete list of municipal bond funds.
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