Considerations
Tax-exempt mutual funds are in almost all cases made up of a portfolio of municipal bonds. These funds earn income that is exempt from federal taxation and, in some cases, exempt from state taxes also. These mutual funds are a relatively safe investment, but many investors find the yields of tax-exempts to be too low (when measured against expected long-term yields in the stock market), for serious consideration. However, they may have a place in your college-saving strategy especially as the child nears college age since they are generally not subject to unanticipated swings in value.