Bond ETFs vs Bond Mutual Funds in taxable

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BogleBuddy12
Posts: 421
Joined: Mon May 18, 2015 4:42 pm

Bond ETFs vs Bond Mutual Funds in taxable

Post by BogleBuddy12 »

Hi all. Can we discuss the comparison between using a bond ETF vs a bond Mutual Fund in a taxable account? I am confused on which is the better option. Also I am confused about Vanguard ETFs vs other companies, since Vanguard ETFs are an extension of the mutual fund. Again, I’m only speaking about bond funds and ETFs in taxable and comparing them. For example:

VTEB (tax-exempt bond index ETF)
vs
VTEAX (mutual fund version)

BND (Total bond market ETF)
vs
VBTLX (mutual fund version)


Thank you!
ruud
Posts: 559
Joined: Sat Mar 03, 2007 1:28 pm
Location: san francisco bay area

Re: Bond ETFs vs Bond Mutual Funds in taxable

Post by ruud »

Comparison in what sense? They should have identical distributions, so there should be no difference in tax efficiency (or lack thereof). The only difference is the trading mechanics, as far as I know.

Edit: some bond mutual funds (VBTLX, but not VTEAX) accrue interest daily rather than monthly, ETFs are always monthly as far as I know. (Edit 2: this is why you can't convert VBTLX to BND, even though they are share classes of the same fund, while you can convert VTEAX to VTEB).
.
sycamore
Posts: 2482
Joined: Tue May 08, 2018 12:06 pm

Re: Bond ETFs vs Bond Mutual Funds in taxable

Post by sycamore »

BogleBuddy12 wrote: Wed Jul 21, 2021 10:10 am Hi all. Can we discuss the comparison between using a bond ETF vs a bond Mutual Fund in a taxable account? I am confused on which is the better option. Also I am confused about Vanguard ETFs vs other companies, since Vanguard ETFs are an extension of the mutual fund. Again, I’m only speaking about bond funds and ETFs in taxable and comparing them. For example:

VTEB (tax-exempt bond index ETF)
vs
VTEAX (mutual fund version)

BND (Total bond market ETF)
vs
VBTLX (mutual fund version)


Thank you!
Can you provide any details about your confusion? Do you mean confusion in general, or in regard to particular attributes of those funds?

Anyway, I think ruud's answer is spot on - the main differences are:

(1) when and the price you buy and sell at (trading mechanics). In this regard, the fact that we're talking about bond funds is of no importance -- all the usual ETF versus mutual fund discussion applies. It really comes down to a matter of preference. If you prefer ETFs more than mutual funds, go with ETFs. Otherwise go with mutual funds.

(2) whether the fund accrues interest daily versus monthly. If your fund accrues interest daily, you'll get a distribution at the end of the month even if you sell the fund in the middle of the month. Whereas if the fund accrues monthly, you only get the distribution if you hold the fund on the "record date" (for example of the dates, see https://investor.vanguard.com/etf/profi ... tions/vteb).


Regarding your quote "Also I am confused about Vanguard ETFs vs other companies". Suffice it to say, the points of comparison are the usual ones for ETFs in general:

- what is the expense ratio? I haven't checked lately but I suspect BND and AGG are very close to each other as are VTEB and MUB, its closest competitor.

- what index does the fund follow? BND and AGG follow the same index. I believe VTEB and MUB currently follow the same index, but MUB is planning to change to a slightly different index (probably to lower their expenses, a good thing for investors) -- see https://www.ishares.com/us/products/239 ... i-bond-etf

- is there a transaction fee to buy or sell? Nowadays, the answer at most brokerages is "no cost to buy or sell ETFs".

Maybe some confusion is to due to the fact that there's actually little substantial difference between the choices, but Bogleheads discussing and debating them makes it seem like you need to be a guru to figure it out.
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