My favorite tax shelter is sweet and simple: tax-deferred municipal bonds.

Study after study suggests that you'll probably come out ahead by paying your taxes and investing in tax-exempts rather than buying a fancy, high-write-off tax-shelter partnership that has high expenses or, perhaps, a low investment yield.

Also, most tax-shelter partnerships simply defer your income taxes until some date in the future. But with municipals, your tax savings are permanent.

With the general level of interest rates falling, investors have been racing to lock up current yields. Sales of municipal-bond unit trusts are nearing a record $16 billion.

There's also a capital-gains play in bonds, because when interest rates fall, the market value of bonds goes up. To get in on that game, investors choose municipal-bond mutual funds -- and during the first 10 months of 1985, they devoured $13 billion worth of funds, compared with $9.8 billion for all of 1984.

Will municipal bonds pay off for you? At today's interest rates, that answer is yes for most investors. In fact, you should be looking at municipals right from the 25 or 26 percent tax bracket and up. For a married couple this year, that's a taxable income (after all deductions and exemptions) of at least $25,600, and for a single person, at least $18,940.

Here's how to figure how much a taxable investment has to pay before it will yield more than a tax-exempt investment in your bracket:

First, assume that you're looking at a 15-year unit trust from Nuveen, recently yielding 8.4 percent. You subtract your bracket (in this example, 25 percent) from 100 percent, and divide the result (75 percent) into the tax-exempt yield that you're considering (8.4). The result is 11.2. It means that a taxable investment has to pay more than 11.2 percent to give you a higher after-tax return than you'd get from Nuveen.

Ten-year Treasury notes recently were yielding 9.2 percent. Five-year bank CDs are averaging 9.5 percent. Corporate bond unit trusts are running around 10.5 percent. So in the middle tax brackets, municipals yield more than all of them.

When buying munis, the average investor should stick with unit trusts or mutual funds. The professionals can buy bonds much more cheaply than you can as an individual.

Unit trusts are probably best for a long-term fixed-income investor. You pay a sales commission of 3 to 5 percent, compared with the zero commission on no-load mutual funds. But over the years, you should get that money back from the trust's slightly higher initial yield.

A trust buys a group of bonds and plans to hold them until maturity. You get interest payments every six months and a pro-rata share of each bond as it comes due. Trusts can last for five to 30 years; by the end of the term, you should have received all your principal back. If you sell before the trust matures, you'll get the bond's current market value, which may be more or less than you invested.

Long-term trusts always have been the most popular with investors for their slightly higher yields. But recently, more buyers have been choosing 10- to 15-year trusts. The shorter terms return your money sooner and give you a little more protection against future inflation.

If you're investing for the short term -- say, as a capital-gains plan or until a child goes to college -- or if you expect to need your savings at any time, stick with no-load (no sales commission) mutual funds. Loaded funds charge commissions of 1.75 to 8.5 percent, which can significantly reduce your yield over the short term.

Mutual-fund investors find that their interest income varies as their fund buys and sells bonds. When you sell your shares, you will get the current market value -- which, again, may be more or less than you paid. If interest rates fall, your fund shares will rise. If interest rates rise, the value of your fund shares will fall.

Many investors prefer funds or trusts that buy only the bonds of their own state. That way, their gains are exempt from state and local taxes, as well as from federal taxes. But single-state trusts often yield a bit less than the general trusts, so put the question to your accountant. It's possible that, even after paying state and local taxes, a higher-yielding national municipal-bond trust will net you more.