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Best Tax-Free Mutual Funds You Must Know About

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Investments are always considered as integral parts to save personal finance, but making the right investments is equally important to grow your savings. However, the downside of investments is that your high yield investment incomes are taxable as per the tax laws of the country where you reside. Therefore, as an investor, your main focus will be on finding such an investment plan that helps you save tax and aids in generating tax-free income. One of the best ways in getting a tax benefit is to invest in a tax-exempt mutual fund.

Tax-exempt mutual funds are simply a collection of investments that generate tax-free incomes in the form of high yield interests. Mutual funds invested in municipal or government bonds are the best tax-free investments as they are the most riskless assets to invest in. The interest accrued from these investments are also not subject to any tax obligations. However, there are some bonds like the Treasury bonds, where the interest incomes are exempt from local or state taxes (if the investors reside in that particular state) but are subjected to federal taxes.

Best Tax- Free Investments

Some of the best tax-free investment funds are listed below.

1) Elss

ELSS, or the Equity-Linked Savings Scheme, is considered among the best tax savings and high yield mutual funds. The maximum exposure of these mutual funds is towards equity and equity-based securities, but a part of it can also be invested in debt instruments as per the preferences of the investors. Equity-linked savings scheme aims at providing the dual benefits of high yield tax savings and capital appreciation to the investors simultaneously. ELSS funds have a mandatory lock-in period of 3 years or more, below which the investors are not eligible for ant tax-exemptions. The investors can continue with the ELSS investments even if the lock-in period ends, quite similarly as any open-ended mutual fund scheme. Here the expense ratio is also less just as in stocks and securities.

However, there are downsides of investing in an ELSS bond fund, and it comes with a disclaimer. An investor should not invest in an ELSS bond fund only because they offer superior returns over a long time period or have a low expense ratio. Investors should only invest in an ELSS bond fund if they have a higher risk appetite like when they invest in stocks or equity. This is because equity is a risky asset and can be very volatile in the short term. Though it has the potential to offer superior returns to the investor over a long time period, that alone is not enough to serve as a criterion to invest in ELSS. Always remember that the ELSS mutual bond funds invest mostly in stocks and securities that are in themselves very risky assets and subject to massive fluctuations.

Also, ELSS returns are neither fixed nor assured and depend on the equity markets’ performance, which in itself is highly unpredictable. To mitigate these risks and uncertainties, investors may diversify their investment portfolio across multiple ELSS schemes based on industry exposure and market capitalization.

2) 529 Education Fund

529 Education fund is another tax saving investment scheme with a low expense ratio that is targeted towards the upliftment of education financing. This plan allows an individual to set money aside for school tuition or higher education. Contributions made towards this plan are calculated after-tax and therefore are tax-exempt. However, sometimes the accumulated tax is deferred. Education FundAlso, the contributions made for higher education costs may be tax-exempt at the federal level but may be taxed in a few states. Before investing into a 529 Education Fund, you should consider the benefits of your usage of personal finance, because spending money on non-eligible expenses will be subjected to income tax plus a penalty will also be levied on your earnings. Another downside of this plan is that money invested into a 529 Education Fund is not as liquid as other investment options like in a high yield municipal bond. However, the beneficiary of a 529 Education Fund can be changed any time if the intended recipient decides not to go for any higher education.

3) Health Savings Account or Hsa

A health savings Account helps investors to invest in a tax-deferred fund and a tax-free earning on eligible spending. Besides reducing the medical costs and saving for medical expenses, an HSA or the health savings account offers tax exemptions also. Pre-tax contributions are exempted from tax and interest earned is also tax-deferred. Therefore, investors can grow their savings as long as the account does not expire. A health Savings account can be opened for self or for the family members who are dependent on the account holder.

Investing in an HSA account offers many tax benefits, and healthcare spending advantages to the account holders with its attractive tax-exempt healthcare plans. The best thing about opening an HSA account is that, if someone does not use them at all, the fund allocated can be rolled over into a retirement account, and can be later used in the long term for incurring health care expenses at old age.

4) Ira

An Individual Retirement Account or IRA is an effective tax-free instrument preferred by investors for tax-free growth of their long term savings. Both Traditional IRAs and Roth IRAs allow an annual contribution of up to $5,500 and $6,500 respectively to the investors. However, the eligibility and the deductions available to reap the benefits depend highly on the income limits and the retirement plans of a particular company. Traditional IRAs allow investors to fund their pre-tax money into the plan and withdraw it at a lower tax rate at the time of retirement. However, traditional IRAs also have downsides, such as mandatory disbursements of certain amounts of the funds after a certain age. IraWhereas on the contrary, Roth IRA uses after-tax money and is tax-free at the time of retirement but has some income eligibility requirements. Here, the high-income earners are not eligible to invest directly into their Roth IRA account. For this, they will first have to invest in a traditional IRA account and then convert it to a Roth IRA.

High yield Municipal Bond

Mutual funds invested in a government or a municipal bond are tax-exempt funds, and so the interest generated from investing in these bonds are not subject to income tax. In some cases, an investor is freed from tax obligations in all the three levels, local, state, or federal, if he resides in the state that levies the tax. A Municipal bond fund also has a low expense ratio.

When one invests in a municipal bond, he is giving a loan to the government and is thus entitled to earn a fixed rate of return in the form of interests that are exempt from tax obligations. But a Municipal bond has certain downsides, e.g., the interest rates of returns are greatly affected by inflation and also, they are sometimes subjected to Alternative Minimum Tax (AMT). High yield Municipal BondHowever, all municipal bonds are not exempt from all taxes. For example, the interest accrued on a particular municipal bond may be exempt from state or local income tax but may be subjected to federal income tax, as in the case with Treasury bonds issued by the US government. As most of the tax-free municipal bond funds are government-issued bonds and are virtually risk-free, they provide much lower interest rates as compared to highly volatile stocks and securities.

Therefore, at first, one should weigh the tax benefits offered by these municipal bond funds, and if it outweighs the reduction in their earning potential, then investing in such bond funds may be lucrative for him. However, whether this trade-off would be beneficial or not depends on other underlying factors of the municipal bond funds as well, like the income tax slab rate or municipal bond rate applicable for a particular and, consequently, his taxable income.

Therefore, before choosing the best mutual bond funds to invest in that give tax exemption to the investors, one should consider the other underlying factors (like municipal bonds rates) that contribute to a safe investment. Factors like liquidity, returns, or safety of a municipal bond fund, etc. would determine how it would be taxed and what tax obligations the investors will have when investing into these municipal bonds. The more the tax obligations the less will be the return in investments, and therefore choosing the right investment is very important.

FAQs

  1. What Are the Best Tax-Free Investments?

Among the best tax-free investments, there are the Employer-sponsored retirement plan, 401 (k), 403 (b), Health Savings Account (HSA), Tax-free ETFs, or 529 Education Fund to name a few.

  1. What Mutual Funds Are Tax-Free?

Municipal bond funds and government bonds are tax-free investments.

  1. Are Municipal Mutual Funds Tax-Free?

Yes, the interest income from Municipal mutual funds are exempted from all the three levels of taxes, local, state, and federal. However, any capital gains realized when the bond is sold either at a premium or at a discount; the sale proceeds are not exempted from taxes. Both state-level and Federal taxes will apply on the capital gains income.

As the municipal mutual funds investors do not exercise control over the bonds at the time of buying or selling the bonds, there lies a high probability for an unexpected tax bill on the investors if the fund generates a profit from capital gains instead of an interest.

  1. What Are the Best Municipal Bonds to Invest In?

The best bonds municipal bonds to invest in are:

  • VTEB – Vanguard Tax-exempt bond ETF
  • NXP – Nuveen Select Tax-Free Income Portfolio
  • GHYIX – Goldman Sachs High -Yield Muni Instl
  • MAYHX- BlackRock High Yield Municipal Instl
  • PRBIX- JPMorgan Tax-Free Bond Fund

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What is Fuelling the Rally in DigiByte Cryptocurrency?

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The DigiByte ecosystem is built with an emphasis on speed and security, which are often identified as limitations on different blockchains. DGB uses a proof of work algorithm to validate and complete a transaction.

With a strong price action witnessed on DGB, we can expect it to reach 10 cents valuations shortly. The current DGB price is facing some resistance from its 100 DMA that has coincided with the wicks on daily chart candles.

DigiByte Price Analysis

One day chart with Support Levels, Resistance, Moving Average, and MACD indicator

DigiByte has an active support range at $0.0500 levels on the immediate downside and resistance at $0.0791 levels. In order to remain in trend there needs to be some profit booking or consolidation, straight-line upside momentum often carries the risk of sudden profit booking induced by some new development.

DGB is for now trading in a bullish zone with immense buying interest. The MACD indicator shows chances of the rally to continue without consolidating but, DGB should halt its rate of progression in between to continue with the upside movement. Its 100 DMA comes out at around $0.06252 levels.

One hour chart with Support Levels, Bollinger, and MACD indicator

DGB shows an immense increase in volumes over the last few hours indicating increased participation from buyers and sellers of this cryptocurrency. As MACD is nose-diving towards the red zone we expect some retracement from current levels and a second attempt at breaking the recent high created at $0.066 levels based on our DigiByte forecast.

Support on hourly charts comes out to be at $0.0579 with Bollinger Bands hitting newfound volatility. The widening of Bollinger bands indicates scope for higher volatility and continuation of the upside movement. For now, DGB seems to have taken support from the lower end of the mean average line and faces some turbulence at the mean average line indicated by red.

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TRON Negates the Fall in Valuation with Strong Buying!

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TRON has climbed huge mountains after its release in 2017 and has posted over 17650% of gains from its launch value in 2017 to September 2021. The value of TRX has undergone a huge change from $0.0022 levels to the current value of $0.9265 levels. TRON currently ranks amongst the top 30 cryptocurrencies with a market capitalization of over $6 billion with a circulating supply of 71 billion coins.

The value of Tron is straight forward a derivative of its exposed circulating supply and its potential. Comparing the numbers, TRON can process 2000 transactions per second compared to just six transactions per second of Bitcoin and 25 of Ethereum. Just comparing the numbers gives the transactional capability of TRX and its upscaling potential.

TRON has mostly focused on content creators and has used TRX coin as a way of rewarding content creators through its rewards. It even allows creators to develop their tokens and decentralize the gaming sector. Positioning itself as a content creator supporting ecosystem has enabled creators to connect directly with potential customers, eliminating centralized platforms. Considering the upscaling potential of Tron, people interested in investing here should hold their positions.

TRON Price Analysis

TRON retraced most of its lost value within a short time interval and is headed back towards $0.11 targets with a furious buying sentiment.

TRON Price Analysis

TRON underwent a surprise fall in its value within a concise time interval. The fall was responded with a huge buying action, almost equaling the selling volume on September 07 in the following day. TRON has once again jumped back to $0.0933. Surpassing the support zone will push the TRX price towards the close resistance of $0.11.

RSI levels have also jumped towards 52 from a steep decline, but the major uncertainty in sustaining the gains. If sellers activate their trades, we will witness a significant fall to the tune of its 100 DMA levels. As of now, TRON can be seen respecting its 200 DMA level of $0.08254. It is attempting a fresh price breakout but is more likely to close in an uncertain candle with wicks on both ends.

TRON price prediction

Hourly charts show consolidation as a large part of the trading action on TRX. It consolidates in a narrow range before giving a breakout and again consolidates within a narrow range. This price action is continuing, and there is a high probability of another breakout towards $0.100 levels. MACD on hourly trades has become positive again, and so has the RSI levels. RSI is now trading at above 50 levels. Combining all these indications and our TRX coin price prediction, one should hold their investments.

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MATIC: Can It Become the Bridge of Interoperability

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Polygon MATIC intends to resolve the problems of the Ethereum network to promote better incorporation of blockchain technology. Polygon came into play as Ethereum transaction fees increased to a level that started to affect scalability.

Polygon has also started to develop its network to support the Ethereum Defi Ecosystem. Another positive news coming in the Polygon counter is Mark Cuban’s unrevealed investment in Indian cryptocurrency, MATIC. This investment news at a time when all crypto counters are witnessing consolidation of profit booking has the potential to fuel another bull run MATIC.

In our MATIC price analysis, we have covered the technical chart and possible breakout zones, as this news can also cause a profit-booking by some. The only trouble to MATIC’s bull run could be ETH 2.0 scalability solutions launch. We know MATIC is working on building layer 2 solutions on the Ethereum network, hence it will be an interesting aspect to decide the future of MATIC.

Could MATIC Win the Ethereum Scaling Race?

Listing of the MATIC token on the Coinbase crypto trading platform has been a ground-moving reason for this cryptocurrency. The MATIC token is used as a transaction fee on all the dapps built using a polygon.

Polygon (MATIC) is currently emphasizing sustainable NFTs with the latest integration. Its Proof of stake mechanism offers better energy efficiency as compared to the Proof of work mechanism used by Ethereum. By moving the NFT transactions away from the main blockchain of Ethereum, Polygon is creating a sustainable market of itself.

The growth lead of Polygon even mentioned the prospects behind incorporating NFT as their blockchain network. Polygon joined the Polkastarter council on May 27, 2021, which is an independent authority that works on the selection process of Polkastarter IDOs. This can be a revolutionary event in scaling the value of the MATIC.

What does the Future Hold for the MATIC?

MATIC has a fixed token supply, a low market capitalization, and works on a network that is increasing its reach are some of the factors fueling further boost in this token. As of now, this cryptocurrency has become the 12th largest digital asset.

MATIC has moved up from the lows of $0.68 on 1st May to $2.89 on 19th May. The volatility of every cryptocurrency is the result of major profit booking and coin dumping. But even so, how does the MATIC coin price prediction fare with the expectation of the crypto-enthusiasts.

MATIC coin price prediction

MATIC price is currently trading well above all its important moving averages. There is a significant movement, which has pushed this coin over the $2 range twice. Currently, the price action is respecting its 30-day moving average. This cryptocurrency has been trading well above its important moving averages. Even in the short term support level of 30 days moving average.

If it fails to take support from its 7 days moving average, the prices could plummet to the $1.3 range. Although given its price action, such a level would be a good buying range. In the long run this coin seems positive as it is respecting the important levels.

MATIC News

Polygon Matic has been witnessing some stiff resistance near its all-time high. Earlier on May 19, the MATIC price fell from the same range during the profit booking session across the crypto market. MATIC coin, however, rebounded from just below $1 valuational to reclaim its previous high.

As evident from the chart patterns, the $2.45 levels will be instrumental for this crypto to reach new heights. There seems to be a support building near its last resistance levels, but any sell-off can push this coin back to the $0.80 range.

RSI indicator is also closing the oversold zones, indicating some weakness in the short term. A rebound from these levels can push MATIC to battle the stiff resistance around $2.45 and test its all-time high.

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