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Tax-free bond fund

A tax-free bond fund is a mutual fund that invests in tax free bonds. Those bonds are primarily municipal bonds. Hence, most tax-free bond funds are in fact municipal bond funds (but check the prospectus for details of the investments they own).

Expanded Definition

Tax-free bond funds are free of federal income taxes. Funds are available that are also free of state income taxes. They are said to be double tax free. Some localities have local income taxes. Funds that are free of all three levels of income taxes are called triple tax free funds.

As with other bond funds, the average maturity and the average bond rating of the bond portfolio are key factors which differentiate one bond fund from another.

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