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Vanguard launches Tax-Exempt Bond Index Fund


Vanguard has launched its first municipal bond index fund, Vanguard Tax-Exempt Bond Index Fund, whiuch will offer three low-cost share classes, including exchange-traded fund (ETF) shares.

"Vanguard is a pioneer in index investing and a leader in municipal bond fund management. Our new fund enables us to leverage our experience and expertise in both of these areas," says Vanguard CEO Bill McNabb (pictured). "Not only did we offer the first index mutual fund to individual investors, but we were also the first to offer investors a choice among municipal bond funds of differing maturities. We are pleased to now provide a low-cost tax-exempt option for investors who prefer an index approach."
The Admiral and ETF shares of the fund feature expense ratios of 0.12 per cent. The municipal bond funds in Lipper's General and Insured Municipal Debt Funds category have an average expense ratio of 0.95 per cent; comparable ETFs in the category have an average expense ratio of 0.28 per cent.
The fund's target benchmark is the S&P National AMT-Free Municipal Bond Index. It seeks to offer diversified exposure to the national municipal bond market, representing bonds with maturities across the yield curve and an effective duration between 5-8 years. The index reflects a higher-quality, investment-grade universe that focuses on the more liquid portion of the market.
"We believe a fund focused on high-quality municipal securities with greater liquidity relative to the overall municipal bond market will reduce credit and liquidity risk. The fund will also benefit from our deep and long-tenured municipal market team, as well as our scale, to minimise trading costs and closely match the benchmark's risk characteristics. At the same time, the fund will carry the interest rate risk consistent with medium- to long-term bonds," says Chris Alwine, head of Vanguard's Municipal Bond Group.

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