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

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 the public. 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 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 municipal bond funds, namely, Franklin High Yield Tax-free Income Fund FRHIX, Vanguard High-yield Tax-exempt Fund VWAHX 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.

Franklin High Yield Tax-free Income Fund invests most of its net assets in securities whose interest is free from federal income taxes, including the federal alternative minimum tax. FRHIX advisors generally invest in municipal securities rated in any rating category, including defaulted securities.

Franklin High Yield Tax-free Income Fund has three-year annualized returns of 5%. As of the end of November 2025, FRHIX had 63.9% of its assets invested in the money market.

Vanguard High-yield Tax-exempt Fund invests most of its assets, along with borrowing, if any, insecurities whose income is exempt from federal income tax. VWAHX advisors generally invest in municipal bonds that will generate a high and sustainable level of current income.

Vanguard High-yield Tax-exempt Fund has three-year annualized returns of 4.1%. VWAHX has an expense ratio of 0.17%.

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 3.5%. Michael Maka has been one of the fund managers of FNJHX since March 2020.