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Fidelity Debuts No-Fee Mutual Funds

When it comes to saving on fees, you can’t do better than zero. But Fidelity’s offerings do come with a catch.

In the years-long race among mutual fund and exchange-traded fund providers to offer the lowest possible fees, Fidelity finally crossed the finish line. The firm recently announced two index mutual funds that come with no investment minimums and a 0% expense ratio. Fidelity Zero Total Market Index (symbol FZROX) tracks the U.S. stock market, and Fidelity Zero International Index (FZILX) tracks stocks abroad.

What’s the catch? The funds are available only to individual investors with Fidelity brokerage accounts. To save on management costs, Fidelity will not license indexes from outside providers but will instead benchmark the funds to indexes assembled by Fidelity. Prospective investors should monitor the funds’ performance compared with other low-cost funds that track traditional indexes, says Charles Rotblut, vice president of the American Association of Individual Investors.

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Fidelity’s zero-expense funds could prompt other fund companies to follow suit, says Kathy Carey, a director of research at investment management firm Baird. But some firms may not bother, she says, given that they already offer funds with minuscule expense ratios—as low as 0.03% at Charles Schwab, for instance.

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