Some Tips on Munis

Here are a few strategies that could make investing in municipal bonds a bit more rewarding:

If you buy munis through mutual funds, the key issue is fees, says Craig Litman, principal at Litman Gregory & Co. The funds that tend to perform the best are frequently the ones that don’t charge upfront sales charges (“loads”) and keep their annual management fees low. Litman’s recommendations: Vanguard’s municipal bond funds, Fidelity’s Limited Term Municipal and Stein Roe’s Intermediate Municipal funds.

If you buy individual bonds, rather than mutual funds, you might want to procrastinate so you don’t get caught in the rush of state and local governments calling the bonds early. That could depress your yields, says Peter B. Coffin, senior vice president at Massachusetts Financial Services. Don’t wait too long, however. The same mad rush is likely to strike in July and the following January.

Some suggest considering long-term bonds--those maturing in 15 to 20 years. They now yield about 6% versus 4% or 5% for bonds with somewhat shorter maturities. Most individuals hold these bonds to maturity, so it doesn’t matter that market prices for long-term bonds fluctuate more, says Jim Lebenthal, chairman of Lebenthal & Co. in New York.