Bond funds:
These bond funds provide the investor with an even greater tax advantage by investing in municipal bonds of a single state. Triple tax-exempt funds are exempt from income tax in a specific city. Thus they generate income exempt from not only federal income tax but also from state and/or city income tax for residents of those jurisdictions. Like all bond funds, the value of the shares will fluctuate with interest rates, as will the current yield. Also, the stability of principal and yield levels vary with the quality and maturity length of the bonds in which the funds invest. Lack of geographic diversification increases credit risk of these funds compared with national funds.
Mutual Fund Selection:
These funds are suitable for investors in medium to high tax brackets in high tax states who want income with maximum exemption from taxes.
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