I'm saving some money, probably for a down payment house, and I'd like it to earn a bit more return than it would just sitting in cash. I max out my Roth 401(k) and my Roth IRA, so any additional savings will be outside tax-sheltered accounts. I found a federal tax-free bond mutual fund with an expense ratio of 0.55% that invests mostly in short-term municipal bonds (with maturities less than 4 years), and I like that I won't pay federal taxes on the dividends.
Looking at the price history (I know it's no sure predictor of future performance), the NAV has been roughly between $10.4 and $10.7. I'm willing to take the risk of losing a little of the principal if it means I can earn a bit of federal-tax exempt interest on the fund.
Apart from possibly losing some of the principal if/when interest rates rise, which they'll definitely do sometime in the next year or so, any other risks to doing this?