What VCIT actually is

VCIT is a bond fund. It holds bonds issued by US companies with good credit ratings and maturities of about five to ten years. When you own the fund, you receive a share of the interest those bonds pay.

What is inside

Hundreds of bonds from banks, industrial companies, utilities and technology firms. Because the issuers are investment grade, default risk is lower than in high-yield bonds, but it is not zero. The medium maturity sits between short-term and long-term bond funds.

Distributions

Bond funds pay monthly interest, and the amount changes as the fund’s holdings change. Unlike a stock dividend, it comes from interest, and part of the income is taxed as ordinary income in a taxable account.

What to keep in mind

  • Interest-rate risk. When rates rise, the price of existing bonds falls.
  • Credit risk. Companies can be downgraded or default.
  • No growth. The share price does not usually grow much over time.
  • Inflation. Fixed interest buys less if prices rise.

Quick take

VCIT is a middle-of-the-road corporate bond fund for steady monthly income, with interest-rate sensitivity.