The debt securities category will always be the first choice for risk-averse investors because this class of instruments provides a regular income at low levels of risk. Income from regular dividends helps to ease the pain caused by plunging stock prices.
When considering the safety of capital invested, municipal bond mutual funds are second only to those investing in government securities. In addition, interest income earned from these securities is exempt from federal taxes and, in many cases, from state taxes.
Below, we share with you three top-ranked municipal bond funds, viz., Vanguard Ltd-Term Tax Exempted VMLTX, Eaton Vance Total Return Bond Fund EBABX and American High-Income Municipal Bond AMHIX. 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.
Vanguard Ltd-Term Tax Exempted invests most of its net assets in municipal bonds with top three credit-rating categories by nationally recognized rating agencies, or determined to be of comparable quality by the fund’s advisors. It also invests a small portion of its net assets in securities with lower credit ratings. VMLTX advisors try to maintain a dollar-weighted average maturity of 2 to 6 years on individual securities.
Vanguard Ltd-Term Tax Exempted has three-year annualized returns of 3.8%. As of July 2025, VMLTX had 86.1% of its assets invested in Total Misc. Bonds.
Eaton Vance Total Return Bond Fund primarily invests in bonds and other fixed or floating-rate income instruments, while allowing a limited allocation to lower-rated or unrated securities considered below investment grade.
Eaton Vance Total Return Bond Fund has three-year annualized returns of 6.5%. Vishal Khanduja has been one of the fund managers of EBABX since June 2019.
American High-Income Municipal Bond invests in securities that are exempt from regular federal income tax and may subject investors to alternative minimum tax.
American High-Income Municipal Bond has three-year annualized returns of 5.9%. AMHIX has an expense ratio of 0.66%.
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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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
