Investors focused on getting a tax-free stable income may consider municipal bond mutual funds or “munis.” Though munis come with lower yields than taxable bonds, they fetch better returns in high tax brackets, if we consider after-tax returns. So, municipal bonds are preferred by investors seeking a steady stream of tax-free income in a volatile market.
California municipal bond mutual funds form one of the main segments in this category. These funds invest in municipal debt obligations of the issuers from the state. These mutual funds are expected to offer the state’s investors stable income, which is not only exempted from federal income tax but also from California state income tax.
Below we share with you three top-ranked 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.
Northern CA Intermediate Tax-Exempt (NCITX – Free Report) invests the majority of its assets in debt instruments that are exempted from federal as well as California state income tax. NCITX seeks return through tax-exempted income. It is a non-diversified fund. Northern CA Intermediate Tax-Exempt has three-year annualized returns of 1.6%.
NCITX has an expense ratio of 0.45% as compared to the category average of 0.75%.
Vanguard California Long-Term Tax-Exempt Investor (VCITX – Free Report) invests the lion’s share of its assets in high-quality municipal bonds income free from federal and California state taxes. VCITX invests in sureties of California state and local governments and is expected to maintain average maturity duration of 10 to 25 years. Vanguard CA Long-Term Tax-Exempt Investor is a non-diversified fund and has three-year annualized returns of 2.5%.
James M. D’Arcy has been the fund manager of VCITX since 2011.
Fidelity Advisor California Municipal Income A (FCMAX – Free Report) seeks tax-exempted high current income. FCMAX invests a large share of its assets in municipal debt securities that are rated as investment-grade and expected to pay interest income free from federal and California personal income taxes. FCMAX invests a minimum of one-fourth of its assets in municipal securities. Moreover, the fund’s investments include securities across a wide range of market sectors irrespective of maturity durations. The Fidelity Advisor California Municipal Income A fund has three-year annualized returns of 1.7%.
FCMAX has an expense ratio of 0.80% as compared to the category average of 0.86%.
USAA California Bond (USCBX – Free Report) invests a large chunk of its assets in securities issued by the state of California that are expected to pay interest income, free from federal income tax and California state income tax. USCBX focuses on acquiring long-term securities. USCBX is expected to maintain dollar-weighted average maturity duration of more than 10 years. The USAA California Bond fund has three-year annualized returns of 2.3%.
Dale R. Hoffmann is the fund manager of USCBX since 2015.
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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