Tax-free bond funds are mutual funds that tend to invest in municipal bonds. The mutual fund is configured to be tax free. As a result, the investor is able to realize a profit, but is less likely to incur a large amount of tax burden.
Also known as a tax-free mutual fund, the tax-free bond fund will seek to include the most profitable municipal bonds currently available, but focus on only those opportunities that will result in a low rate of tax passed on to the investors. Tax-free mutual funds offer the benefit of not only creating less of a tax burden, but also allow investors to participate in financing of projects that ultimately benefit everyone who resides in the municipality that issued the bond.
The bonds that are often included in a tax-free bond fund can be loaded bonds or no-load bonds. A loaded bond is essentially a bond issue that is structured to allow a commission to be collected on the sale of the bonds. No-load bonds do not include a commission. Both types of bonds are capable of generating a respectable return on the investment, and thus can be attractive for inclusion in the mutual fund.
A tax-free bond fund may be associated with a private mutual fund, or be sponsored on a statewide level. There are many examples of municipal bonds that are ideal for inclusion in a tax-free bond fund. Financial analysts and advisors can help investors to find the right tax-free bond fund program that will result in equitable returns, combining the ability to create a tax advantage with the acquisition of bond issues that appeal to the investor from a civic point of view.
In addition, investors can research many different tax-free bond fund options via the Internet. Many of the individual funds operate web sites that allow investors to log in and check on the status of all the municipal bonds included in the fund. It is also possible to find commentaries regarding the various tax-free bond funds online, which may prove helpful in selecting a particular fund.