At a glance
VSDM charges 0.12% a year, below the 0.14% average of the 7 funds most like it (the 5th cheapest of 8). It has $831.5M in assets, the 8th largest of that group; it paid 1.04% of its price in distributions over the past 12 months, monthly. Its ten largest positions make up 3.8% of the fund, out of 2,910 in all.
The short version
Vanguard Short Duration Tax-Exempt Bond ETF (VSDM) is an actively managed fund of municipal bonds. It aims for income free of federal income tax and the alternative minimum tax, with limited price swings. Its 0.12% expense ratio is a bit below the 0.14% average of similar funds but above Vanguard's broader VTEB, at 0.03%. It launched November 5, 2024, so its track record is short.
Price history
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VSDM — over the year to Oct 27, 2026, total return with distributions reinvested.
How it has behaved
| YTD | 1 yr | 3 yr | 5 yr | 10 yr | Since start | |
|---|---|---|---|---|---|---|
| VSDM official prospectus, to Dec 31, 2025 | — | +4.49% | — | — | — | +4.46% |
| VSDM price data to Oct 27, 2026 | 0.0% | — | — | — | — | — |
- The deepest fall in its price history was 2.8% (Aug 13, 2026 to Sep 29, 2026), not yet recovered.
| 2008 financial crisis stocks fell Oct 9, 2007 – Mar 9, 2009 | Before this security existed |
|---|---|
| 2020 COVID crash stocks fell Feb 19, 2020 – Mar 23, 2020 | Before this security existed |
| 2022 bear market stocks fell Jan 3, 2022 – Oct 12, 2022 | Before this security existed |
Dividends and income
No distribution history is available for this fund.
Distributions through Oct 27, 2026.What's inside
As of Jul 31, 2026, the fund held 2,910 securities; the ten largest made up 3.79% of assets.
| Holding | Weight | |
|---|---|---|
| Southeast Energy Authority A Cooperative District Bonds and notes | 0.50% | |
| New Jersey Transportation Trust Fund Authority Bonds and notes | 0.41% | |
| Florida Municipal Power Agency Bonds and notes | 0.38% | |
| California Community Choice Financing Authority Bonds and notes | 0.38% | |
| California Community Choice Financing Authority Class D Bonds and notes | 0.37% | |
| Energy Southeast A Cooperative District Bonds and notes | 0.36% | |
| Black Belt Energy Gas District Bonds and notes | 0.35% | |
| Texas Municipal Gas Acquisition & Supply Corp IV Bonds and notes | 0.35% | |
| Southern California Public Power Authority Bonds and notes | 0.34% | |
| Southern California Public Power Authority Class A Bonds and notes | 0.33% | |
| California Community Choice Financing Authority Class D Bonds and notes | 0.32% | |
| Lower Colorado River Authority Class B Bonds and notes | 0.32% | |
| Lower Colorado River Authority Bonds and notes | 0.31% | |
| California Community Choice Financing Authority Bonds and notes | 0.29% | |
| Kentucky Public Energy Authority Bonds and notes | 0.29% |
By country
United States 98.99%By issuer
Municipalities 98.96%US government-sponsored enterprises 0.03%The bonds mature in 12.2 years on average (weighted by size), with an average coupon of 4.58%.
Source: N-PORT holdings report as of Jul 31, 2026. Cash, money-market funds and derivatives are shown separately from the securities list.What changed recently
- Over the three months to Jul 31, 2026, investors added a net $233.6M (creations minus redemptions, per the N-PORT report).
- Monthly total returns reported for that quarter: +0.30%, +0.40%, -0.54%.
How it works
VSDM does not track an index. Vanguard's managers choose the bonds. As a fundamental policy, at least 80% of net assets go into bonds issued by US states, local governments and their agencies. The interest on these bonds is exempt from federal income tax and the alternative minimum tax (AMT), a parallel tax that can catch some higher earners. As of July 31, 2026, the fund held 2,910 issues, and the 10 largest made up only 3.79% of assets. The largest were the Southeast Energy Authority (about 0.5%), the New Jersey Transportation Trust Fund Authority and the Florida Municipal Power Agency.
The main lever is duration, a measure of how much a bond's price moves when interest rates change. The fund keeps its average duration between 1.5 and 5 years. With a duration of 3 years, for example, a 1-point rise in rates would cut the price by about 3%. The fund aims for an average maturity of 2 to 7 years, with no limit on any single bond. The July 2026 holdings report showed an average of 12.2 years to final maturity. Duration can be shorter than stated maturity when bonds can be repaid early.
Most holdings are investment-grade (Baa3 or higher from Moody's, or similar quality). Up to 20% can be lower-rated "junk" bonds. The fund is nondiversified, so it can put more into single issuers or one state. Portfolio turnover was 13%. It also held tiny positions in Treasury note futures.
What it really costs
- VSDM charges 0.12% a year, versus an average of 0.14% for the similar funds below (5th of 8, cheapest first).
- Of that, 0.07% is the management fee; the rest covers other fund expenses.
- Using the prospectus's standard example, $10,000 invested would cost about $12 in the first year and $154 over 10 years (assuming a 5% annual return).
| Cost of $10,000 (SEC example) | 1 yr | 3 yrs | 5 yrs | 10 yrs |
|---|---|---|---|---|
| VSDM | $12 | $39 | $68 | $154 |
Structure and tax notes
- Bond prices move opposite to interest rates; the longer the maturities it holds, the more its price reacts to rate changes.
In a retirement portfolio
Its short duration target of 1.5 to 5 years aims to keep price swings small while paying tax-exempt income.
VSDM is built to cushion a portfolio rather than grow it. It pays income monthly. The trailing 12-month yield was 1.04% ($0.79 per share) as of October 27, 2026. That income is generally free of federal income tax, which helps most in a taxable account. In an IRA it brings no extra benefit. The record is short: the fund launched in November 2024, so it has no history from the 2008, 2020 or 2022 sell-offs. It returned 5.39% in 2025, and its weakest quarter that year still gained 0.76%. Its deepest price drop was 2.8%, from August 13 to September 29, 2026. It had not recovered as of October 27, 2026. Under the SEC's standard example, costs are $12 in the first year on $10,000. Past results don't predict the future, and a plan should look at the whole portfolio, not one fund.
Who it may suit — and who should look elsewhere
May suit
- Taxpayers in higher federal brackets who hold bonds in a taxable account and want income free of federal income tax and the AMT.
- Retirees setting aside money they may need within a few years, given the 1.5-to-5-year duration target and a weakest 2025 quarter of +0.76%.
- Investors who want managers picking bonds across 2,910 municipal issues for 0.12%, below the 0.14% average of similar funds.
Look elsewhere if
- Anyone investing through an IRA or 401(k). There, tax-exempt income brings no extra benefit and taxable bonds may pay more.
- Cost-focused investors: VTEB charges 0.03%, MUB 0.05% and SUB 0.07%, though those funds differ in maturity or approach.
- Investors who want a long track record. Launched in November 2024, it has not been through a major bond sell-off like 2022.
Close alternatives
Matched by bond funds with the closest average maturity and issuer mix (N-PORT).
| Fund | Avg. maturity | Cost | Net assets | 1 yr | 3 yr |
|---|---|---|---|---|---|
| VSDM this fund | 12.2 yrs | 0.12% | $831.5M | — | — |
| CMF iShares California Muni Bond ETF | 12.4 yrs | 0.08% | $4.63B | -0.6% | +3.8% |
| MUB iShares National Muni Bond ETF | 13.5 yrs | 0.05% | $45.38B | -0.2% | +3.7% |
| VTEB Vanguard Tax-Exempt Bond ETF | 14.5 yrs | 0.03% | $48.52B | +0.1% | +4.4% |
| TFI SPDR Nuveen Bloomberg Municipal Bond ETF | 15.1 yrs | 0.23% | $3.12B | -0.8% | +3.9% |
| SHM SPDR Nuveen Bloomberg Short Term Municipal … | 6.2 yrs | 0.2% | $3.47B | +1.2% | +3.3% |
| HYD VanEck High Yield Muni ETF | 19.2 yrs | 0.32% | $4.43B | +0.9% | +5.5% |
| SUB iShares Short-Term National Muni Bond ETF | 3.3 yrs | 0.07% | $11.64B | +2.1% | +3.3% |
Questions investors ask
Is VSDM good for retirement income?
It can supply tax-exempt monthly income, but the amount is modest. The trailing 12-month yield was 1.04% ($0.79 per share) as of October 27, 2026. The interest is generally exempt from federal income tax and the AMT, which helps most in a taxable account. Its short duration aims to limit price swings, though its price still fell 2.8% between August 13 and September 29, 2026. It works more as a cushion than as a main source of income.
What's the difference between VSDM and VTEB?
Both are Vanguard municipal bond ETFs. VSDM is actively managed and keeps its average duration between 1.5 and 5 years. It costs 0.12% a year against VTEB's 0.03%. VTEB is much larger, with about $48.5 billion in net assets. By stated maturity the gap is smaller than the names suggest: about 12.2 years for VSDM versus 14.5 for VTEB. VTEB returned 4.4% a year over three years as of October 30, 2026. VSDM is too new to have a three-year figure.
Does VSDM pay monthly dividends?
Yes. VSDM pays distributions monthly. Over the 12 months to October 27, 2026, it paid $0.79 per share, a trailing yield of 1.04%. The payments come from interest on the fund's municipal bonds, so they can rise or fall. The prospectus warns that income may drop when interest rates fall. It also notes that income from shorter-term bonds tends to change more than income from longer-term bonds.
Is VSDM income tax-free?
Mostly from federal income tax, but not always from state tax. The fund puts at least 80% of net assets into municipal bonds whose interest is exempt from federal income tax and the AMT. Its bonds come from issuers in many states, including California, Texas and New Jersey, so state tax may apply depending on where the investor lives. Capital gains distributions are taxable. The prospectus also warns that the tax exemption could be lost, possibly retroactively, if tax laws change.
Can VSDM lose money?
Yes, though its swings have been small so far. Its deepest price drop was 2.8%, from August 13 to September 29, 2026, and it had not fully recovered as of October 27, 2026. Rising interest rates can push its price down. Up to 20% can be in below-investment-grade bonds, which carry more default risk. As a nondiversified fund, it can hold more of a single issuer or state. Municipal bonds can also be harder to sell than other bonds.