Paying taxes can sometimes be a difficult job to do; however, it is important and is a part of living in a country that offers its citizens multiple benefits. That doesn’t mean that one can’t benefit from the legal ways available through which one can cut down on taxes by whatever amount.

To understand the concept of tax-free income funds better, we can divide the terms. An income fund is either a mutual fund or an exchange-traded fund that offers the dividends to the shareholders. This is used by the investors to build an income stream from investments for themselves. When it comes to a tax-free fund, it indicates an investment where the dividends are not taxed. These types of tax-free income funds are known as municipal bond funds. It would be a clever investment choice to take a tax-free income fund that contains a tax-free municipal bond from the state if you belong to a higher tax bracket.

However, it is important for one to understand and analyze what kind of benefits would come out of investing in tax-free income funds, or if there would be any benefits in the first place. To do that, one can consider a marginal tax rate and then compare the rate of return on comparable tax-free and taxable income funds. Once you get to know of the investment that will give you a higher return after taxing, you will have your answer.

In a year, the American High-Income Municipal Bond Fund showed a performance of 4.33% with an expense ratio of 0.68%; the MFS Municipal high income fund showed a performance of 5.18% and an expense ratio of 0.69%; Columbia high yield municipal fund showed a performance of 5.20% and an expense ratio of 0.87%; the Principal California municipal fund showed a performance of 3.93%, while it was seen that this company’s expense ratio was 0.77%.