Invest in bonds issued by local governments–such as cities, counties and states–that use the money for public projects like building schools, highways or libraries. Degree of investment risk: moderate to low.

Invest in debt obligations of state and local governments and their agencies and instrumentalities.

These funds invest in bonds issued by states, cities, and other local government agencies. They raise capital for needs such as hospitals, schools, and roads. Income is generally exempt from federal income tax and may also be exempt from state or local taxes, or both, if the investor lives in the state that issued the bonds.