A mutual fund which invests in municipal bonds. These bond funds are popular among investors in high income tax brackets because they are exempt from federal taxes and, in some cases, from state taxes as well. As with U.S. government bond funds, the underlying securities in muni funds are backed by the government and thus are considered to have a high credit rating. However, municipalities have been known to declare bankruptcy on occasion, making these funds more risky than U.S. government bonds. also called municipal bond fund.