A mutual fund that invests in tax-exempt securities and passes through tax-free current income to its shareholders. Some municipal bond funds purchase long-term securities that provide a relatively high current yield, but vary substantially in price with changes in interest rates. Other funds choose short-term securities that have lower yields but fluctuate little in value. Municipal bond funds differ from municipal bond unit trusts in that the funds manage the bond portfolios and charge an annual management fee. See also double-exempt fund, tax-exempt money market fund.