How liquid are Vanguard mutual funds?
The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its funds are very liquid, with shares being sold once a day. It manages dozens of funds with varying investment objectives to fit any investor profile ranging from managed funds to index funds that track specific indexes such as the S&P 500.
Mutual funds are some of the most prolific investments found in the marketplace. One of the key questions investors ask before committing capital to such investments is about their liquidity. In other words, an investor wants to know how easily he can sell his shares and redeem them for cash.
Mutual Fund Basics
Like all mutual funds, Vanguard funds trade once a day at the close of the market. The net asset value (NAV) is recalculated, and this is when shares are bought and sold. Unlike stocks that can trade almost instantaneously, mutual funds have a slight delay, but they are still one of the most liquid types of investments. Once shares in a mutual fund are sold, it generally takes just a few days for an investor to receive his capital.
One thing investors need to watch for is fees associated with buying and selling in a Vanguard mutual fund. All funds, even the passively-managed index funds, have expense ratios associated with them, but some also come with purchase fees, redemption fees or in some cases, both. The purchase fee ranges from 0.25% to 1% up front on certain funds, while others can charge you on the back end with a 0.25% redemption fee. The funds might be liquid, but it can be costly if you trade in and out of these types of funds often.
All mutual funds are liquid, although they may have different redemption schedules which would require a fee be charged in the case of liquidity needs.
At the end of each trading day, all mutual fund orders are executed at the fund's net asset value. Vanguard or any other mutual fund will be just as liquid as a stock. The only difference being that a stock is sold at different prices over the course of a trading day whereas a mutual fund is sold at the end of the day at the fund's net asset value.
There are different redemption fees according to which share class of the fund you buy and this will determine whether you pay an up-front, back-end, contingent deferred sales load or no-load. (The expense ratio usually differs with which share class you buy as well.)
If you are using Vanguard there is no need to invest in a particular share class. No-load funds are not technically a "share class."
- Class A mutual fund shares generally have front-end sales charges (also known as a "load"). A shares are best for investors who plan to invest larger dollar amounts and will buy shares infrequently. If the purchase amount is high enough, you may qualify for "breakpoint discounts." Be sure to inquire about these discounts on the load if you plan to purchase additional shares of the fund (or mutual funds within the same fund family).
- Class B shares are a share class of mutual funds that do not carry front-end sales charges, but instead charge a contingent deferred sales charge (CDSC) or "back-end load." Class B shares also tend to have higher 12b-1 fees than other mutual fund share classes. Class B shares can eventually exchange into Class A shares after seven or eight years. They may be best for investors who do not have enough to invest to qualify for a break level on the A share, but intend to hold the B shares for several years or more.
- Class C Share mutual funds charge a "level load" annually, which is usually 1.00%, and this expense never goes away, making C share mutual funds the most expensive for investors who are investing for long periods of time. There may also be 12b-1 fees.
- Class D mutual funds are often similar to no-load funds in that they are a mutual fund share class that was created as an alternative to the traditional and more common A share, B share and C share funds that are either front-load, back-load or level-load, respectively.
- Load-waived funds are mutual fund share class alternatives to loaded funds, such as A share class funds. As the name suggests, the mutual fund load is waived (not charged).
Additionally, mutual funds are required to maintain liquidity and the capacity to accommodate withdrawals. Funds typically have to keep a portion of their portfolio as cash. The funds are keeping cash balances of usually around 8% of the fund.
Mutual funds, Vanguard or not, are redeemable on a daily basis. This is considered very liquid. Vanguard mutual funds are not anymore liquid than other mutual funds, but ETFs (Exchange Traded Funds) can be traded throughout the day. Vanguard offers both mutual funds and ETFs and often has mutual funds that mimic their ETFs and vice versa. If you are investing with Vanguard and you are seeking more than daily liquidity, consider looking at their ETFs.
I hope this was helpful.
Vanguard Mutual Funds are as liquid as any other mutual fund, which is not very. This is a relative answer. If you need the money to be liquid today or tomorrow, then NO mutual fund will ever be a good choice for you. Mutual Funds can be sold at any time in the trading day, but will settle only at 4P EST, at the closing of the stock market. This is when their Net Asset Value (NAV) is set. It will then take T+3, or Trade date + 3 days, for the liquidated cash to appear in your account.
Mutual Funds all have fees associated with them as well. These can be excessive, although the new DOL Fiduciary Rule should be bringing them more into line. I'd consider buying ETF's before mutual funds, and plain old stocks and bonds before ETF's.
In a word, very. Most Vanguard funds are extremely liquid. The only thing you really need to be concerned with are the new regulations concerning fund redemptions, primarily money market funds, during times of market duress. There are new rules on redemptions, known as "speed bumps" and short term redemption fees which penalize you or can limit the amount you take out over short time periods during extreme duress. The fund managers and fund board have some broad discretion over this so you may want to contact each fund family and ask about their specific plans and what would make them limit withdrawals.
But under almost all market environments except Black Swan events, Vanguard would be considered one of the most liquid fund families.
Hope this helps, Dan Stewart CFA®