It appears that most bond ETFs pay out monthly distributions from interest earnings. Is there a way to directly reinvesting the earnings on the fund without triggering a taxable event? Are there any funds that do this internally?


(Assuming you are in the USA) If your money is not in a qualified (eg retirement) account, any distribution from the fund is going to be taxable to you, either as regular income or capital gain. Reinvesting the dividend does not change that. (Municipal bond funds may or may not be taxable, depending on where you live.)

Most funds will use cash-on-hand coming from interest payments and capital gains (if they actively manage their portfolio) to reinvest, but in the USA funds must distribute a certain percentage of the interest/gains they recieve from the holdings or else they have tax implications that will affect expenses and NAV.

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