Vanguard to Impose Limit on Frequency of Trades

July 14, 2005 ( - Investors who sell shares in a Vanguard fund after September 30 will not be able to purchase shares in that fund by phone or online within 60 days, according to a MarkeWatch report. Transactions by mail will still be allowed.

In addition, the report said that after September 30, clients of financial advisers will be assessed redemption fees, and shareholders in 401(k) accounts and other employer-sponsored plans will incur these fees after December 31.

A Vanguard spokesman said the new limits were set to deter frequent trading and protect the investments of long term shareholders who tend to bear the brunt of costs associated with frequent trading in the fund.  They join other fund companies in imposing fees in response to market-timing issues from recent fund scandals (SeeT. Rowe Price to Fine Retirement Plan Market Timers  and Fidelity to Tighten Redemption Fee Tracking, Collection Process ).

Up until now, Vanguard only limited frequent trading in cases involving large dollar amounts.

Vanguard’s VIPER exchange-traded funds, short-term bond funds or money market funds are exempt from the new rule, MarketWatch said.   Asset transfers and rollovers, check-writing redemptions, mail transactions, and certain automatic transactions are also exempt.