For individual investors seeking tax-advantaged investment strategies in the fixed-income space, municipal bonds offer an attractive solution. Municipal bonds are debt securities issued by government entities that provide modest returns by way of interest payments over the duration of the bonds. The interest received on a municipal bond is generally exempt from federal tax, and in some cases, state and city tax as well. Individual investors have the ability to purchase municipal bonds individually through the entity issuing the security, or investors may use a pooled investment strategy such as a mutual fund to gain more exposure to multiple municipal bond issues.

While municipal bonds are attractive to investors in higher tax brackets, the securities carry a degree of risk. General obligation bonds, or those backed by the taxing power of the issuing entity, are considered to be safer investments than revenue bonds, or those used to fund specific projects. Because general obligation bonds expose investors to less risk, interest rates paid on these municipal bonds are lower than other debt securities. Revenue bonds have a greater risk of default over time, but they can provide a higher rate of return to investors who are willing to take on that risk. Investing in municipal bond funds allows investors to diversify among general obligation and revenue bonds with the potential for tax-exempt earnings.

Here's a look at some of the top municipal bond funds for 2018: the American High-Income Municipal Bond Fund (AMHIX), the Nuveen High Yield Municipal Bond Fund I (NHMRX), the Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX), the T. Rowe Price Maryland Tax-Free Bond Fund (MDXBX) and the Oppenheimer Rochester High Yield Municipal Fund Class A (ORNAX). All information was current as of November 2018.

American High-Income Municipal Bond Fund

The American High-Income Municipal Bond Fund was established in 1994 for the purpose of providing investors with a high level of current income exempt from regular federal income tax. The fund's managers invest a substantial portion of the fund's $6.56 billion assets in municipal bond debt securities exempt from federal tax. The mutual fund diversifies holdings across low and highly rated bond issues, with a significant amount of assets in debt securities rated BBB+ or below. 

As of November 2018, the American High Income Municipal Bond Fund has generated a 10-year annualized return of 6.36%. The mutual fund's expense ratio is 0.68%, and investors are charged an upfront sales load of 3.75% when they purchase shares. A minimum investment of $250 is required for both qualified and non-qualified investment accounts.

Nuveen High Yield Municipal Bond Fund I 

The Nuveen High Yield Municipal Bond Fund was established in 1999 and sought to provide investors with current income exempt from federal tax. Capital appreciation is a secondary investment objective of the fund. Fund managers invest a minimum of 80% of the mutual fund's $17.46 billion in assets in municipal bonds that pay interest exempt from personal income tax on the federal level, with the majority of fund assets invested in long-term, lower-quality issues.

The Nuveen High Yield Municipal Bond Fund has generated a 10-year annualized return of 6.69% for investors as of November 2018. The mutual fund has an expense ratio of 0.78% and an up-front sales load of 4.2% for new purchases, although no deferred sales charge is imposed at the time of redemption. Investors are required to make an initial investment of $3,000 for qualified and non-qualified accounts.

Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares

The Vanguard Intermediate-Term Tax-Exempt Fund has an inception date of 1977, making it one of the longest-standing municipal bond mutual funds on the market. The fund seeks to provide investors with current income that is exempt from federal personal income tax by investing a minimum of 75% of its $58.10 billion in assets in municipal bonds rated in the top three rating categories. As an intermediate municipal bond fund, it maintains a dollar-weighted average maturity of six to 12 years, but fund managers do not have specific limitations on the maturity of individual securities held within the fund.

As of November 2018, the Vanguard Intermediate-Term Tax-Exempt Fund has generated a 10-year annualized return of 4.07% with an exceptionally low expense ratio of 0.19%. Investors are not charged an up-front or deferred sales load on share purchase or redemption, although an initial investment of $3,000 is required for new qualified and non-qualified accounts.

T. Rowe Price Maryland Tax-Free Bond Fund

The T. Rowe Price Maryland Tax-Free Bond Fund was established in 1987 and sought to provide a high level of current income to fund investors. Fund managers invest a minimum of 80% of the fund's $2.24 billion assets in debt securities that are exempt from federal and Maryland state and local personal income taxes. Bond holdings range in duration, and debt securities within the fund are focused on higher-quality issues.

As of November 2018, the T. Rowe Price Maryland Tax-Free Bond Fund has generated a 10-year annualized return of 5.02% with an expense ratio of 0.47%. The mutual fund does not impose an upfront or a deferral sales charge to investors, although an initial investment of $2,500 is required for both qualified and non-qualified accounts.

Oppenheimer Rochester High Yield Municipal Fund Class A

The Oppenheimer Rochester High Yield Municipal Fund has an inception date of October 1993. The mutual fund invests at least 80% of its $5.91 billion net assets in high-yield municipal bonds issued across the U.S. with tax-exempt income.

As of November 2015, the fund has generated a 10-year annualized return of 8.84% for investors. The mutual fund has an expense ratio of 0.95% and an up-front sales load of 4.75%. It also requires an initial investment of $2,500.