After a dream run in 2015, high-yield municipal bond mutual funds or high-yield muni bond mutual funds continue to impress this year. Among the muni bond fund categories, the high-yield ones emerged as the top performers in the first quarter, according to Morningstar. These funds – considered one of the safest choices in deriving tax-exempted returns – boast a return of 1.8% this quarter. Mutual funds from this category returned 4.28% last year.

In this scenario, it will be interesting to find the top-performing mutual funds with strong fundamentals from this sector that are still good investment options. Before going into the details of these funds, let’s have a look at the key factors that gave them a boost in the first quarter.

Factors Boosting High-Yield Muni Bond Funds

The tax-free income appeal of high-yield muni bond mutual funds played a major role in drawing the attention of risk-averse investors in the first quarter. Exemptions from federal tax and in many cases from state taxes as well, and the potential to provide higher yields than funds from other muni bond categories, helped these to fetch healthy returns and see consistent inflows.

According to Lipper, investors pumped in $273 million of assets in funds from this category in the week ending March 23. This was preceded by an inflow of $229.6 million registered a week earlier. Separately, the U.S. based municipal bond funds posted a net inflow of $901.5 million for the week ending March 23, in addition to $780 million of inflows registered the earlier week.

Moreover, dismal performances by equity markets in the first half of the quarter amid China-led global growth worries and the slump in oil prices forced investors to pull out their money from stocks and invest in comparatively safer assets. This also had a positive impact on the performance of high-yield muni bond mutual funds. Although equity markets recovered significantly in the latter half of the quarter, investors continued to invest notable portions of their assets in these funds.

Separately, despite several concerns, the U.S. economy continues to outperform other major economies thanks to strong labor market conditions, steady growth in consumer spending and significant improvement in the domestic housing market. This too played a major role in boosting high-yield muni bond mutual funds.

Best-Performing High-Yield Muni Bond Funds

Below we highlighted five top-performing high-yield muni bond mutual funds of the first quarter. We shall consider those mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), no sales load, minimum initial investment below $5000 and a low expense ratio.

These funds not only emerged as the top performers in the first quarter, but are also expected to sustain their momentum in the near future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

Apart from impressive first-quarter returns, these funds also have healthy one-year and three-year annualized returns, and solid annual dividend yields.

Dreyfus High Yield Municipal Bond I (DYBIX - MF report) invests the lion’s share of its assets in municipal debt securities that are believed to provide return free from federal income tax. DYBIX is expected to have dollar-weighted average maturity of not more than 10 years.

Currently, DYBIX carries a Zacks Mutual Fund Rank #1 and returned 2.8% during the first quarter. The product also has one-year and three-year annualized returns of 6.4% and 4.3%, respectively. Annual expense ratio of 0.78% is lower than the category average of 0.96%. The fund also has an annual dividend yield of 4.44%.

PIMCO High Yield Municipal Bond D (PYMDX - MF report) seeks a high level of federal tax exempted current income. PYMDX primarily invests in municipal bonds that are rated investment grade.

Currently, PYMDX carries a Zacks Mutual Fund Rank #1 and returned 2.4% during the first quarter. The product also has one-year and three-year annualized returns of 6.7% and 4.4%, respectively. Annual expense ratio of 0.85% is lower than the category average of 0.96%. The fund also has an annual dividend yield of 3.6%.

Oppenheimer Rochester High Yield Muni Y (ORNYX - MF report) invests a large chunk of its assets in municipal securities that provide income free from regular federal and state taxes. ORNYX invests in securities of state governments, the District of Columbia and their affiliates.

Currently, ORNYX carries a Zacks Mutual Fund Rank #2 and returned 2.4% during the first quarter. The product also has one-year and three-year annualized returns of 6% and 4.4%, respectively. Annual expense ratio of 0.59% is lower than the category average of 0.96%. The fund also has an annual dividend yield of 5.9%.

MFS Municipal High-Income I (MMIIX - MF report) seeks total return. MMIIX invests the majority of its assets in securities, interest income from which are exempted from federal income tax.

Currently, MMIIX carries a Zacks Mutual Fund Rank #1 and returned 2.2% during the first quarter. The product also has one-year and three-year annualized returns of 5.5% and 4.7%, respectively. Annual expense ratio of 0.66% is lower than the category average of 0.96%. The fund also has an annual dividend yield of 4.05%.

Goldman Sachs High Yield Muni IR (GYIRX - MF report) invests a large share of its assets in high yield municipal securities that provide interest income free from regular federal income tax. GYIRX focuses on acquiring securities that are rated non-investment grade or medium quality.

Currently, GYIRX carries a Zacks Mutual Fund Rank #2 and returned 2% during the first quarter. The product also has one-year and three-year annualized returns of 4.8% and 4.3%, respectively. Annual expense ratio of 0.61% is lower than the category average of 0.96%. The fund also has an annual dividend yield of 4.53%.