Vanguard launched its first municipal bond index fund, the Vanguard Tax-Exempt Bond Index Fund, with three share classes, including exchange traded fund shares, the company announced Tuesday.

The Admiral shares (VTEAX) and ETF shares (VTEB) of the product feature expense ratios of 0.12 percent, while the Investor shares (VTEBX) sport an expense ratio of 0.20 percent. In comparison, the municipal bond funds in Lipper’s General and Insured Municipal Debt Funds category have an average expense ratio of 0.95 percent and comparable ETFs in the category have an average expense ratio of 0.28 percent, Vanguard notes.

The fund’s target benchmark is the S&P National AMT-Free Municipal Bond Index, which seeks to offer diversified exposure to the national municipal bond market representing bonds with maturities across the yield curve and an effective duration between five and eight years.

“We believe a fund focused on high-quality municipal securities with greater liquidity relative to the overall municipal bond market will reduce credit and liquidity risk,” says Chris Alwine, head of Vanguard’s municipal bond group.

“The fund will benefit from our scale to minimize trading costs and closely match the benchmark’s risk characteristics. The fund will carry the interest rate risk consistent with medium- to long-term bonds,” he adds.

Vanguard manages $118 billion in tax-exempt bond funds and manages $3.3 trillion in global assets. Adam Ferguson, a portfolio manager in Vanguard fixed income group, will manage the new fund.