To understand what municipal bond funds are, you first have to understand what a municipal bond is. These bonds are made out to local governments and their value fluctuates depending in the credit of the area where they are issued.
Municipal bond funds are typically created by large financial groups and controlled by various professional traders that in turn invest these bonds. They are not subject to taxation and as such are a favorite of investors who have state with high tax rates.
There are five basic types of municipal bond funds;