Index Fund Fees Hit A New Low: Zero

Mutual fund giant Fidelity is now offering zero-fee index funds. So what’s the catch?

- Rob Curran

RETIREMENT GIANT FIDELITY wants to let you invest for free. Should you?

Earlier this year, the Boston-based mutual fund company launched Fidelity Zero Total Market Index Fund and the Fidelity Zero International Index Fund, two new offerings Fidelity says will charge investors nothing.

The new funds—designed to give investors broad-based exposure to U.S. and international stocks, respectively—are the result of a years-long price war among Fidelity and other big U.S. fund managers including BlackRock, Vanguard, and Charles Schwab.

For many shoppers, the term “free” has an almost magical quality. That’s doubly true for retirement investors who know that costs, above all else, are the key to evaluating an investment. Fidelity says the funds are a loss leader designed to attract customers to other products like retirement income annuities, which it will continue to charge for.

THE BACKSTORY

While index, or passive, investing has always had its fans, the strategy’s popularity has exploded in the decade since the financial crisis. As a result, nearly half of all U.S. stock investments are now in low-cost passive investments, according to a study in the BIS [Bank for International Settlements] Quarterly Review.