Muni Bond funds and Capital Gains

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Theseus
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Muni Bond funds and Capital Gains

Post by Theseus » Sat Nov 10, 2018 10:09 am

Do the Municipal Bond funds like VWIUX (Vanguard Intermediate-Term Tax-Exempt Fund) generate annual capital gain as their holdings mature? I am assuming they buy the individual bonds and hold to the maturity based on the duration objectives of the fund. Since it is muni bond fund, it will be exempt from the Federal taxes. But I am not sure if there is any capital gain generated from just holding such a fund.

PFInterest
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Re: Muni Bond funds and Capital Gains

Post by PFInterest » Sat Nov 10, 2018 10:15 am

no it generates income.

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Artsdoctor
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Re: Muni Bond funds and Capital Gains

Post by Artsdoctor » Sat Nov 10, 2018 10:58 am

Theseus wrote:
Sat Nov 10, 2018 10:09 am
Do the Municipal Bond funds like VWIUX (Vanguard Intermediate-Term Tax-Exempt Fund) generate annual capital gain as their holdings mature? I am assuming they buy the individual bonds and hold to the maturity based on the duration objectives of the fund. Since it is muni bond fund, it will be exempt from the Federal taxes. But I am not sure if there is any capital gain generated from just holding such a fund.
The national muni funds have been distributing capital gains distributions, although some of the state-specific muni funds have.

Correction: I meant to say that "the national muni funds have NOT been distributing capital gains distributions . . . "
Last edited by Artsdoctor on Mon Nov 12, 2018 9:16 am, edited 1 time in total.

Theseus
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Re: Muni Bond funds and Capital Gains

Post by Theseus » Sat Nov 10, 2018 12:10 pm

PFInterest wrote:
Sat Nov 10, 2018 10:15 am
no it generates income.
I know bonds and bond funds generate income. But I am more interested in capital gains associated with individual bond holdings in the mutual fund. So to elaborate - if the fund purchased an individual bond at a discount in the open market (say at $80) which was at less than the face value (say it was $100), and they hold it to the maturity, then would there be any capital gain on $20 ($100-$80)?

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goingup
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Re: Muni Bond funds and Capital Gains

Post by goingup » Sat Nov 10, 2018 2:04 pm

Artsdoctor wrote:
Sat Nov 10, 2018 10:58 am
Theseus wrote:
Sat Nov 10, 2018 10:09 am
Do the Municipal Bond funds like VWIUX (Vanguard Intermediate-Term Tax-Exempt Fund) generate annual capital gain as their holdings mature? I am assuming they buy the individual bonds and hold to the maturity based on the duration objectives of the fund. Since it is muni bond fund, it will be exempt from the Federal taxes. But I am not sure if there is any capital gain generated from just holding such a fund.
The national muni funds have been distributing capital gains distributions, although some of the state-specific muni funds have.
Is that right? I have held VWIUX for many years. I can't remember any capital gains distributions.

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dratkinson
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Re: Muni Bond funds and Capital Gains

Post by dratkinson » Sat Nov 10, 2018 2:32 pm

All bond funds can distribute capital gains generated from internal fund operation. It's not a common occurrence, but also not uncommon.

A capital event (gain/loss) is generated when the fund sells an individual bond for less/more than they paid for it. I believe this only happens when a bond is sold before maturity. I don't believe a capital event is generated when a bond is redeemed at maturity, because then the purchase price and redemption price should be the same.

I believe capital losses are banked to offset future gains. I believe excess capital gains are distributed to fund owners.

I could be mistaken is some of this.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Artsdoctor
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Re: Muni Bond funds and Capital Gains

Post by Artsdoctor » Sat Nov 10, 2018 6:32 pm

goingup wrote:
Sat Nov 10, 2018 2:04 pm
Artsdoctor wrote:
Sat Nov 10, 2018 10:58 am
Theseus wrote:
Sat Nov 10, 2018 10:09 am
Do the Municipal Bond funds like VWIUX (Vanguard Intermediate-Term Tax-Exempt Fund) generate annual capital gain as their holdings mature? I am assuming they buy the individual bonds and hold to the maturity based on the duration objectives of the fund. Since it is muni bond fund, it will be exempt from the Federal taxes. But I am not sure if there is any capital gain generated from just holding such a fund.
The national muni funds have been distributing capital gains distributions, although some of the state-specific muni funds have.
Is that right? I have held VWIUX for many years. I can't remember any capital gains distributions.
You've held the national muni fund. A state-specific fund can declare capital gains distributions, seemingly more frequently.

https://investor.vanguard.com/mutual-fu ... ions/vpaix

Geologist
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Re: Muni Bond funds and Capital Gains

Post by Geologist » Sat Nov 10, 2018 7:02 pm

Artsdoctor wrote:
Sat Nov 10, 2018 6:32 pm
goingup wrote:
Sat Nov 10, 2018 2:04 pm
Artsdoctor wrote:
Sat Nov 10, 2018 10:58 am
Theseus wrote:
Sat Nov 10, 2018 10:09 am
Do the Municipal Bond funds like VWIUX (Vanguard Intermediate-Term Tax-Exempt Fund) generate annual capital gain as their holdings mature? I am assuming they buy the individual bonds and hold to the maturity based on the duration objectives of the fund. Since it is muni bond fund, it will be exempt from the Federal taxes. But I am not sure if there is any capital gain generated from just holding such a fund.
The national muni funds have been distributing capital gains distributions, although some of the state-specific muni funds have.
Is that right? I have held VWIUX for many years. I can't remember any capital gains distributions.
You've held the national muni fund. A state-specific fund can declare capital gains distributions, seemingly more frequently.

https://investor.vanguard.com/mutual-fu ... ions/vpaix
The problem is that you wrote "The national muni funds have been distributing capital gains distributions." Perhaps you meant to put a "not" in there but it isn't what you wrote. Certainly the National Intermediate Term hasn't.

venkman
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Re: Muni Bond funds and Capital Gains

Post by venkman » Sat Nov 10, 2018 9:22 pm

VG's national muni funds tend to own mostly premium bonds, so they typically won't have much in the way of capital gains.

Gill
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Re: Muni Bond funds and Capital Gains

Post by Gill » Sat Nov 10, 2018 9:28 pm

This may be a stupid comment, but I’m sure you know capital gains on municipal bonds are taxable? It wasn’t clear from your question if you were aware of that.
Gill

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Artsdoctor
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Re: Muni Bond funds and Capital Gains

Post by Artsdoctor » Mon Nov 12, 2018 9:15 am

Geologist wrote:
Sat Nov 10, 2018 7:02 pm
Artsdoctor wrote:
Sat Nov 10, 2018 6:32 pm
goingup wrote:
Sat Nov 10, 2018 2:04 pm
Artsdoctor wrote:
Sat Nov 10, 2018 10:58 am
Theseus wrote:
Sat Nov 10, 2018 10:09 am
Do the Municipal Bond funds like VWIUX (Vanguard Intermediate-Term Tax-Exempt Fund) generate annual capital gain as their holdings mature? I am assuming they buy the individual bonds and hold to the maturity based on the duration objectives of the fund. Since it is muni bond fund, it will be exempt from the Federal taxes. But I am not sure if there is any capital gain generated from just holding such a fund.
The national muni funds have been distributing capital gains distributions, although some of the state-specific muni funds have.
Is that right? I have held VWIUX for many years. I can't remember any capital gains distributions.
You've held the national muni fund. A state-specific fund can declare capital gains distributions, seemingly more frequently.

https://investor.vanguard.com/mutual-fu ... ions/vpaix
The problem is that you wrote "The national muni funds have been distributing capital gains distributions." Perhaps you meant to put a "not" in there but it isn't what you wrote. Certainly the National Intermediate Term hasn't.
You're absolutely right. I should have proof-read my post, and I'll make the correction now.

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grabiner
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Re: Muni Bond funds and Capital Gains

Post by grabiner » Mon Nov 12, 2018 10:40 pm

Vanguard's estimated 2018 capital gains show that most of the long-term muni funds, both Long-Term Tax-Exempt and several state funds, are likely to distribute capital gains in 2018.
Wiki David Grabiner

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