Top Tax-Exempt Income Funds to Boost Your Investment Strategy

Managing taxes effectively is crucial for maximizing your investment growth. While taxes are a part of life, investors can leverage legal strategies to minimize tax liabilities. One effective approach is investing in tax-exempt income funds, which help increase income while reducing your tax burden.

An income fund, whether mutual or ETF, distributes dividends to shareholders. Tax-exempt income funds, notably municipal bond funds, provide dividends that are not taxed, making them an attractive option for those in higher tax brackets. Choosing tax-free municipal bonds from your state can be especially beneficial.

Before investing, consider your marginal tax rate and compare returns from taxable and tax-free funds. Select the option that yields higher after-tax returns. For example, the American High-Income Municipal Bond Fund achieved a 4.33% return with a 0.68% expense ratio. Similarly, MFS Municipal High Income Fund posted 5.18%, Columbia High-Yield Municipal Fund 5.20%, and Principal California Municipal Fund 3.93%, with respective expense ratios of 0.69%, 0.87%, and 0.77%.