California municipal bond mutual funds seek tax-free stable income by investing in municipal debt obligations of issuers from the state. These mutual funds are expected to offer the state’s investors a federal income tax and California state income tax exempted steady income. Moreover, municipal bonds or “munis” are preferred by investors seeking a steady stream of tax-free income in a volatile market. Though munis come with lower yields than taxable bonds, they fetch better returns for investors in high tax brackets if we consider after-tax returns.
Below we share with you four top-rated California muni bond mutual funds. 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 muni bond funds.
American Century California High Yield Muni A (CAYAX – Free Report) invests a large chunk of its assets in municipal securities that are believed to provide interest income free from federal and California income taxes. CAYAX focuses on acquiring California municipal securities that are rated below investment grade. The fund may also invest in securities that are unrated. American Century California High Yield Muni A is a non-diversified fund and has three-year annualized returns of 2.9%.
CAYAX has an expense ratio of 0.75% as compared with the category average of 0.85%.
American Century California High-Yield Municipal Investor (BCHYX – Free Report) invests a chunk of its assets in municipal securities that are expected to provide income free from federal and California income taxes. BCHYX seeks a tax-exempted high level of current income. The fund mainly invests in California municipal debt securities that are rated below investment grade and expected to provide high yield. BCHYX may also invest in unrated securities. American Century California High-Yield Municipal Investor has three-year annualized returns of 3.2%.
As of September 2018, BCHYX held 533 issues, with 2.59% of its assets invested in FOOTHILL / EASTERN TRANSN CORRIDOR AGY CALIF 6%.
Franklin California High Yield Municipal A1 (FCAMX – Free Report) invests a large part of its assets in municipal securities, whose interest income is exempted from California personal income taxes and regular federal income taxes. The fund invests almost all its assets in securities, whose income is subjected to the federal alternative minimum tax. Franklin California High Yield Municipal A1 has three-year annualized returns of 3%.
John Wiley is a fund manager of FCAMX since 1993.
To view the Zacks Rank and past performance of all muni bond mutual funds, investors can click here to see the complete list of muni bond funds.
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