Investing with two of the biggest fund companies may cost you less, and one fund company will pay you. By Russel Kinnel, Contributing Editor December 3, 2010 Most types of mutual funds haven't changed their fees much in recent years. The one exception: index funds. Investors have benefited from the intense competition among exchange-traded funds. That has led traditional open-end index funds to cut their fees, too, and some brokers have dropped commissions for buying and selling ETFs.Now, two of the biggest fund companies are opening new fronts in the expense wars. Vanguard has announced de facto cuts by lowering the initial minimum investment for its Admiral class of index funds from $100,000 to $10,000. The move, by the firm that is the low-cost leader when it comes to serving the little guy, means that most of the 1.8 million investors who hold $10,000 or more in Vanguard index funds will save on fees. Deep Cuts The reductions apply to both stock and bond funds. For example, the expense ratio for Total Stock Market Index drops from 0.18% for the Investor class (symbol VTSMX) to 0.07% for the Admiral class (VTSAX). For European Stock Index, the fee drops from 0.27% for the Investor class (VEURX) to 0.16% for the Admiral class (VEUSX). Vanguard is making things easy for its clients by switching them to the cheaper class automatically. Check your account online or call customer service. If your money hasn't yet been moved to the Admiral funds, ask Vanguard to take action right away. The exchanges will be tax-free. Advertisement Next, I turn to another fine firm but one that has been much less considerate of rank-and-file investors. Bond giant Pimco treats institutions fairly. But fees for its Class A and Class D shares, held mostly by retail investors, are indefensibly high. Pimco's parent, Allianz, is responsible for selling Pimco's funds to the masses and, like many insurers, tries to get as much as it can. So it charges 0.90% a year, for example, for Pimco Total Return A (PTTAX) and 0.75% a year for Total Return D (PTTDX), even though the fund's assets (in all classes combined) have grown to more than $250 billion. It's a similar story at other Pimco funds. But Pimco is reclaiming responsibility for distributing its funds to retail investors, and there are hints of coming fee reductions. I don't know whether that means fees will drop by two-hundredths of a percentage point or by twenty-hundredths. But given today's meager bond yields, reductions of any size would help. Let's hope they're bigger rather than smaller. For the most amazing cuts of all, I call your attention to two Bridgeway funds. One is charging investors nothing. In the other case, Bridgeway is paying shareholders to invest. I kid you not. The explanation: Bridgeway ties management fees to performance. Its funds tack on extra fees when they perform well and trim fees when they perform poorly. Results have been awful the past three years, so the sponsor is paying the price. As a result, the current expense ratio for Bridgeway Aggressive Investors 1 (BRAGX) is a remarkable -0.51%. (In theory, this means that if the fund grossed 10% over the coming year and the sponsor continued to reimburse the fund at the current rate, investors would earn 10.51%.) The fund is shut to new customers. But if you already own it, hold on. (I'd hold on to just about any fund whose sponsor was paying me to invest.) Advertisement Then there's Bridgeway Micro-Cap Limited Fund (BRMCX), which has a 0% expense ratio and is open to new investors. Performance has been lousy over the past five years, but the fund has outpaced its peer group (small-company growth funds) by a wide margin since its 1998 inception. Funds that invest in tiny companies, as Bridgeway does, typically charge more than 1.5% a year, so getting Micro-Cap at no charge is a bargain. I wouldn't use the Bridgeway funds for the core of my investment program, but I could see using them to juice up my portfolio around the edges.