3 Top-Ranked Municipal Bond Funds Offering Steady Tax-Free Income

Municipal bonds, or "muni bonds," comprise debt securities that are issued by various states, cities, counties and other governmental entities to raise money to build roads, schools and a host of other projects for the public good. These municipal securities regularly make 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 exempt 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 bond 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 bond funds, namely, Goldman Sachs High Yield Municipal Fund GHYAX, Pimco Municipal Bond PMLAX and Fidelity New Jersey Municipal Income Fund FNJHX. 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.

Goldman Sachs High Yield Municipal Fund invests most of its assets, along with borrowings, if any, in fixed-income securities issued by or on behalf of states, territories and possessions of the United States and the political subdivisions, agencies and instrumentalities.GHYAX advisors invest in securities, the interest on which is exempted from regular federal income tax.

Goldman Sachs High Yield Municipal Fund has three-year annualized returns of 4.9%. As of the end of March 2026, GHYAX had 79.4% of its net assets invested in Miscellaneous Bonds.

Pimco Municipal Bond fund invests most of its net assets in debt securities whose interest is, in the opinion of bond counsel for the issuer, exempted from federal income tax. PMLAX advisors invest in U.S. government securities and money market instruments. Without limitation, PMLAX advisors also invest in private bonds with similar tax preference.

Pimco Municipal Bond fund has three-year annualized returns of 4.4%. PMLAX has an expense ratio of 0.75%.

Fidelity New Jersey Municipal Income Fund invests most of its assets in investment-grade municipal securities whose interest is exempt from federal and New Jersey personal income taxes. FNJHX advisors invest in assets across different market sectors and varied maturity periods.

Fidelity New Jersey Municipal Income Fund has three-year annualized returns of 4.2%. Michael Maka has been the fund manager of FNJHX since March 2020.

To view the Zacks Rank and the past performance of all municipal bond funds, 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).

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