Are Fidelity's Zero-Fee Index Funds Really a Good Deal?

Man with thoughtful expression under a chalkboard with a scales drawn on it. Once an index fund builds enough scale, it might be able to earn a small profit from this activity, even without charging fees. This involves loaning shares to short sellers, who pay interest for the privilege. Index, also a proprietary Fidelity index described as "a float-adjusted market capitalization-weighted index designed to reflect the performance of non-U.

Fees matter, but so does performance

But if these funds generate market-level returns, eliminating even those small fees would be worth it. Furthermore, this first foray into no-fee funds will probably be followed by more options from competitors. So I say wait. VTI , with its 0. More From The Motley Fool. Jason Hall has no position in any of the stocks mentioned. The Motley Fool has the following options: The Motley Fool has a disclosure policy. Jason Hall, The Motley Fool.

Motley Fool August 5, Five hands reaching up for a dollar bill dangling above them. A hand with a ruler next to progressively taller stacks of coins. What's an investor to do? Man with thoughtful expression under a chalkboard with a scales drawn on it. Recently Viewed Your list is empty. I was wondering if you have seen the recent "no-fee" Fidelity mutual index funds for U. What is the catch? That hasn't happened quite yet, but investors in the U. FZILX does the same for the rest of the developed world.

Kevin, I don't blame you for being skeptical, because large financial institutions are not known for their charitable acts. But there is no catch here: Moreover, there is no minimum investment and no trading commissions to buy or sell the funds.

But that shouldn't be the end of the questions. We should also be asking why a fund company would offer free funds, especially a firm like Fidelity, which has long had a reputation for downplaying index investing and boasting about its superstar money managers. The answer, it seems, is that competition in the U. According to veteran investment journalist Jonathan Clements , "After decades of pooh-poohing index funds, Fidelity has clearly decided they're its best bet for getting new investor dollars in the door.

It seems likely that Fidelity is trying to take market share away from its competitors. Even though investors can already build a portfolio at a cost of less than 0. And once these investors become Fidelity clients, they may be tempted to add some of the company's other mutual funds to the portfolios.