High-yield municipal bond mutual funds provide an excellent opportunity for investors interested in deriving healthy tax-exempted returns. Funds that invest in municipal bonds, also known as “munis”, seek to provide returns with a low level of risk by investing in municipal debt securities issued by state and local governments. These securities are believed to provide steady returns exempted from federal taxes and in many cases from state taxes as well, which is the reason why investors prefer these securities in a choppy market. They also fetch better returns for investors in high tax brackets if we consider after-tax returns.

Meanwhile, high-yield bond mutual funds are those that invest in non-investment grade bonds, also known as junk bonds. These funds are expected to provide better returns than securities with higher ratings. Also, due to their higher yield feature, junk bonds are believed to be less susceptible to interest rate fluctuations. Though bonds that are rated below investment grade are believed to be riskier than investment grade bonds, a well-diversified portfolio of these securities has a lower level of risks.

Below we will share with you five top-rated, high-yield municipal bond mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as is expected to outperform its peers in the future. To view the Zacks Rank and past performance of all municipal bond funds, investors can click here to see the complete list of funds.

American Century High-Yield Muni Investor (ABHYX - MF report) invests the lion’s share of its assets in municipal securities that are expected to provide interest payments free from federal income tax. ABHYX invests in high-yield securities. Also, ABHYX may invest in securities, return from which is not exempted from the federal alternative minimum tax. American Century High-Yield Muni Investor has a one-year return of 7.9%.

As of March 2016, ABHYX held 310 issues, with 1.44% of its assets invested in New York N Y Go Bds 0.25%.

Invesco High Yield Muni A (ACTHX - MF report) seeks tax-free current income and invests heavily in municipal bonds. ACTHX invests a minimum 75% of its assets in medium and low-rate municipal bonds that are expected to offer high yield. Moreover, ACTHX invests a maximum 25% of its assets in bonds that derive revenues from industrial development. Invesco High Yield Muni A has a one-year return of 9%.

ACTHX has an expense ratio of 0.86% as compared to the category average of 0.94%.

Eaton Vance High-Yield Municipal Income A (ETHYX - MF report) invests a large chunk of its assets in municipal debt securities that are expected to provide returns exempted from regular federal income tax. ETHYX invests in high-yield securities issued by the U.S. government and municipal bodies of the District of Columbia. Eaton Vance High-Yield Municipal Income A has a one-year return of 8.7%.

Cynthia J. Clemson is the fund manager of ETHYX since 2004.

Franklin High Yield Tax-Free Income Advisor (FHYVX - MF report) seeks high tax-free current yield. FHYVX invests in securities that are expected to provide interest income free from federal income taxes. The fund may also invest in defaulted securities. FHYVX may invest a maximum of one-fourth of its assets in municipal obligations of a particular state or territory. Franklin High Yield Tax-Free Income Advisor has a one-year return of 6.3%.

As of March 2016, FHYVX held 711 issues, with 1.53% of its assets invested in Public Auth 6.5%.

Goldman Sachs High Yield Municipal A (GHYAX - MF report) invests a major portion of its assets in fixed income securities that are issued by municipal bodies of states and territories of the U.S. GHYAX invests in securities that are rated between medium quality or non-investment grades and is a non-diversified fund. Goldman Sachs High Yield Municipal A has a one-year return of 7.7%.

GHYAX has an expense ratio of 0.86% as compared to the category average of 0.94%.