It’s already March, which means it’s time for the year’s first round of quarterly distributions, as well as any supplemental distributions that Vanguard must pay out. Supplemental distributions are gains or income that were earned but not distributed in 2012 and must be paid out before the end of the first quarter to keep funds in compliance with SEC regulations.
Before You Concoct a Distribution-Capture Scheme
If you’re unfamiliar with mutual fund distributions, it’s tempting to compare them to a stock’s dividend — but there are some important differences. A mutual fund distribution is composed of the fund’s capital gains and income. The fund then simply passes all its own taxable gains to the shareholders — it pays out or “distributes” the capital gains it has realized and income it has received.
So because of that, it’s not a good idea to jump into a mutual fund before the record date (the equivalent of a stock’s ex-dividend date) because you get taxed on that distribution regardless of whether your account value went up or not. The better thing to do would be to wait until the date passes, or buy in a tax-deferred account.
Now back to the main attraction: what Vanguard’s mutual fund distributions mean if you already own one of their funds.
Vanguard’s Quarterly Distributions
Vanguard Health Care Fund (MUTF:VGHCX) and virtually all of Vanguard’s taxable fixed-income funds, including many ETFs, are potentially paying out some capital gains (the exact amounts aren’t known until the day before they are paid). These supplementals will be paid out on Tuesday, March 19, and also on Thursday, March 28, which is the last trading day of the month (given that March 29 is Good Friday and markets are closed). You can see a list of estimated supplemental fund distributions on Vanguard’s site here.
As a reminder, I encourage taxable investors to direct distributions to money market accounts instead of reinvesting immediately in the fund where the distribution came from. This allows you the flexibility to redeploy the money to underperforming funds or to pay a tax bill without having to sell shares down the road (something I practice with my own money).
The list of regular quarterly income payers is expanded compared to last year as a number of international funds have switched to a quarterly calendar:
- Vanguard 500 Index Fund (MUTF:VFINX)
- Vanguard Balanced Index Fund (MUTF:VBINX)
- Vanguard Convertible Securities Fund (MUTF:VCVSX)
- Vanguard Dividend Appreciation Index (MUTF:VDAIX)
- Vanguard Emerging Markets Index Fund (MUTF:VEIEX)
- Vanguard Equity Income Fund (MUTF:VEIPX)
- Vanguard European Index Fund (MUTF:VEURX)
- Vanguard Financials Index Fund (MUTF:VFAIX)*
- Vanguard Global ex-U.S. Real Estate Fund (MUTF:VGXRX)
- Vanguard Growth Index Fund (MUTF:VIGRX)
- Vanguard High Dividend Yield Index Fund (MUTF:VHDYX)
- Vanguard Inflation Protected Securities Fund (MUTF:VIPSX)
- Vanguard Large Cap Index Fund (MUTF:VLACX)
- Vanguard Pacific Index Fund (MUTF:VPACX)
- Vanguard REIT Index Fund (MUTF:VGSIX)
- Vanguard Short-Term Inflation-Protected Securities Index Fund (MUTF:VTIPX)
- Vanguard STAR LifeStrategy Conservative Growth Fund (MUTF:VSCGX)
- Vanguard STAR LifeStrategy Income Fund (MUTF:VASGX)
- Vanguard Target Retirement Income Fund (MUTF:VTINX)
- Vanguard Tax-Managed Balanced Fund (MUTF:VTMFX)*
- Vanguard Tax-Managed Growth & Income Fund (MUTF:VTGLX)*
- Vanguard Tax-Managed International Fund (MUTF:VTMGX)*
- Vanguard Total International Index Fund (MUTF:VGTSX)
- Vanguard Total Stock Market Index Fund (MUTF:VTSMX)
- Vanguard Total World Stock Index Fund (MUTF:VTWSX)
- Vanguard Utilities Index Fund (MUTF:VUIAX)*
- Vanguard Value Index Fund (MUTF:VIVAX)
- Vanguard Wellesley Income Fund (MUTF:VWINX)
- Vanguard Wellington (MUTF:VWELX)
- Vanguard World ex-U.S. Index Fund (MUTF:VFWIX)
- Vanguard World ex-U.S. SmallCap Index Fund (MUTF:VFSVX)
Remember, the ETF shares of the funds listed above will also pay out distributions. Additionally, a few other ETFs are scheduled to pay out regular quarterly income:
- Vanguard Extended Duration Treasury ETF (NYSE:EDV)
- Vanguard MegaCap ETF (NYSE:MGC)
- Vanguard MegaCap 300 Growth ETF (NYSE:MGK)
- Vanguard MegaCap 300 Value ETF (NYSE:MGV)
- Vanguard Russell 1000 ETF (NASDAQ:VONE)
- Vanguard Russell 1000 Growth ETF (NASDAQ:VONG)
- Vanguard Russell 1000 Value ETF (NASDAQ:VONV)
- Vanguard Russell 3000 ETF (NASDAQ:VTHR)
- Vanguard S&P 500 Growth ETF (NYSE:VOOG)
- Vanguard S&P 500 Value ETF (NYSE:VOOV)
Note: Funds that are only available as Admiral shares are starred. All other tickers represent the Investor-class shares.
Editor Dan Wiener and Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.