What is an ETF?

An exchange-traded fund, or ETF, is an investment that’s built like a mutual fundinvesting in potentially hundreds, sometimes thousands, of individual securitiesbut trades on an exchange throughout the day like a stock.

Are there any tax advantages to owning a Vanguard ETF ?

Because Vanguard ETFs are shares of conventional Vanguard index funds, they can take full advantage of the tax-management strategies available to both conventional funds and ETFs.

What’s the difference between a Vanguard ETF and a Vanguard mutual fund?

Each Vanguard ETF is a share class of a Vanguard index mutual fund, so many characteristicslike the fund’s objective, holdings, and managementare identical.

The main difference is that Vanguard ETFs trade on an exchange like stocks, so they’re pricedand can be bought and soldthroughout the trading day. Because they’re traded on an exchange, they must be bought and sold through a brokerage account.

Vanguard ETF Shares also have lower expense ratios and investment minimums than Investor Shares of the same fund.

Will I get capital gains and dividend distributions with Vanguard ETFs . If so, can I reinvest them?

Yes, Vanguard ETFs are a share class of Vanguard index funds, so they’ll declare dividends whenever the other share classes do. Capital gains, if any, will be distributed annually each December.

If you invest through a Vanguard Brokerage Account, you can reinvest dividends and capital gains. If you invest through another broker, ask whether it offers a reinvestment option.

Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF Shares?

Yes, most funds that offer ETF Shares will allow you to convert from conventional shares of the same fund to ETF Shares. (Four of our bond ETFsTotal Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bonddon’t allow for conversions.)

Conversions are allowed from both Investor and Admiral Shares and are tax-free if you own your mutual fund and ETF Shares through Vanguard.

Keep in mind that you can’t convert ETF Shares back to conventional shares. If you decide in the future to sell your Vanguard ETF Shares and repurchase conventional shares, that transaction could be taxable.

If you have a brokerage account at Vanguard, there’s no charge to convert conventional shares to ETF Shares. If you have questions, call us at 866-499-8473 .

If you own your Vanguard mutual fund shares through another broker, keep in mind that some brokers may not be able to convert fractional shares, which could result in a modest taxable gain for you. Other brokers may also charge a fee for a conversion. Contact your broker for more information.

Can I buy ETFs from other companies through Vanguard?