Vanguard to Restrict Frequency of Trades

Vanguard Group is taking a major step to clamp down on investors who frequently move in and out of its mutual funds.

As of Sept. 30, investors won’t be able to buy shares of a Vanguard fund by phone or online within 60 days of selling shares in the same fund. The firm will allow the repurchase of shares within 60 days by mailed check, however.

The policy shift is a stark one for the Valley Forge, Pa., fund giant, which currently allows investors to make unlimited round trips between funds as long as it doesn’t deem the trades large enough to have an adverse effect on managing the funds.

Vanguard money market funds, short-term bond funds and “Viper” exchange-traded funds are exempt from the new policy. Also, the change won’t apply to asset transfers and rollovers, check-writing redemptions, transactions by mail and certain automatic transactions.

The firm first notified shareholders of the move in a June 30 account statement.

“Frequent trading by individual shareholders generally results in higher transaction costs for fund shareholders overall and may also interfere with an advisor’s ability to manage the fund,” Vanguard said.

Kunal Kapoor, an analyst at Chicago investment research firm Morningstar Inc., said that people tend to move their funds around “more than they maybe ought to” and that the new Vanguard policy would be positive for long-term shareholders.