Mutual funds having significant exposure to municipal bonds, which are also known as “munis,” provide an excellent choice for risk-averse investors looking to derive stable tax-free return. These funds 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 during a choppy market. Though munis are expected to provide lower yields compared to taxable bonds, they fetch better returns for investors in high tax brackets if we consider after-tax returns.

Below we will share with you 5 top rated municipal bond mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect these mutual funds to outperform their 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 .

Invesco High Yield Muni A (ACTHX - MF report) seeks current income exempted from federal tax. ACTHX invests the majority of its assets in municipal securities. ACTHX invests a minimum 75% of its assets in municipal securities that are rated as either medium- or lower grade securities, while it invests a maximum 25% of its assets in industrial development revenue bonds. The Invesco High Yield Muni A fund has returned 3.1% over the past three-month period.

ACTHX has an expense ratio of 0.86% as compared to the category average of 0.97%.

Dreyfus Municipal Bond (DRTAX - MF report) invests almost 100% of its assets in municipal debt securities that are expected to provide return exempted from federal income tax. DRTAX invests the majority of its assets in securities that are rated A or higher. DRTAX is believed to maintain a dollar-weighted average maturity of more than 10 years. The Dreyfus Municipal Bond fund has returned 2.5% over the past three-month period.

As of December 2015, DRTAX held 207 issues with 2.55% of its assets invested in Citizens Ppty Ins Corp Fla Coastal A 5%.

Nuveen Colorado Municipal Bond A (FCOTX - MF report) seeks high tax-free current income with capital preservation. FCOTX invests the lion’s share of its assets in municipal bonds that are rated BBB/Baa or above. FCOTX invests in debt securities that are believed to provide interest income free from regular federal, Colorado state and Colorado local income taxes. FCOTX may also invest a maximum of 20% of its assets in municipal securities that are rated below investment grade. The Nuveen Colorado Municipal Bond A fund has returned 2.6% over the past three-month period.

Christopher L. Drahn is the fund manager of FCOTX since 2011.

Franklin California High Yield Municipal A (FCAMX - MF report) invests a large share of its assets in municipal securities that pay interest, which is exempted from taxes collected by the government and the State of California. FCAMX may also invest all of its assets in instruments that provide return that are not exempted from federal alternative minimum tax. FCAMX may invest a maximum of 35% of its assets in municipal bonds approved by the US territories including Puerto Rico. The Franklin California High Yield Municipal A fund has returned 3.1% over the past three-month period.

FCAMX has an expense ratio of 0.63% as compared to the category average of 0.90%.

Pioneer AMT-Free Municipal A (PBMFX - MF report) seeks high tax-exempted current income with capital stability. PBMFX is expected to invest heavily in investment grade municipal bonds, income from which is free from regular federal income tax. PBMFX focuses on acquiring securities having maturity period above one year. PBMFX may invest a maximum of 10% of its assets in non-investment grade debt securities. The Pioneer AMT-Free Municipal A fund has returned 3% over the past three-month period.

As of November 2015, PBMFX held 248 issues with 1.64% of its assets invested in Massachusetts St Health & Edl Rev B 5.5%.