How Fidelity’s No-Fee Mutual Funds Could Revolutionize Investing

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Fidelity Investments is now offering what it characterizes as the industry’s first mutual funds with a zero percent expense ratio — a move that promises to revolutionize investing.

“This means investors will pay a 0.00% fee, regardless of how much they invest in either fund,” the firm announced this week.

The two new funds — which are also available with no minimum investment — are available to investors starting today. Their names are:

  • Fidelity ZERO Total Market Index Fund
  • Fidelity ZERO International Index Fund

This news is a huge deal for the average person trying to save money for retirement, as index funds are widely considered among the shrewdest ways to invest retirement savings.

This move is also a jab at Fidelity’s index fund competitors like Vanguard Group and Charles Schwab. Indeed, Fidelity’s announcement comes one month after Vanguard announced that it would debut commission-free exchange traded funds (ETFs) in August.

Vanguard made a name for itself by offering index funds with some of the lowest expense ratios. But Fidelity has been one-upping Vanguard by slashing costs for at least a couple of years now.

No minimum investments

It’s not just the two new index funds that are available with no required minimum investment.

Fidelity has also implemented “across-the-board zero investment minimums” for its brokerage accounts. In other words, it will require no minimum investment from folks seeking to open a brokerage account.

Additionally, Fidelity now requires no minimum investment for its mutual funds and 529 college savings plans that are available to individual investors, either directly or via a financial adviser.

Lower fees

In addition to debuting fee-free index funds, Fidelity is reducing fees “on its existing stock and bond index mutual funds.” The average asset-weighted annual expense ratio for these investments will fall by 35 percent.

Jabbing directly at competitors, Fidelity continues:

“With this action, 100 percent of Fidelity’s stock and bond index mutual funds and sector ETFs will have total net expenses lower than all of Vanguard’s comparable funds that are available to individuals, advisors and institutional investors. In addition, Fidelity beats Schwab’s prices for nine of 10 comparable index mutual funds (and is tied on the 10th index mutual fund).”

Fidelity estimates the changes will save shareholders a total of $47 million annually.

Fidelity also has eliminated account fees and money movement fees for brokerage accounts. This means it will not charge individual investors for:

  • Domestic bank wires
  • Check stop payments
  • Returned checks
  • Low-balance maintenance

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