Fidelity upped the ante earlier this week in the mutual fund price war by declaring that two of their index funds would carry zero cost for investors.
This goes to show that investors may have taken the pursuit of low cost to a ridiculous level. Considering the hundreds of funds that Fidelity manages for $Billions in annual fees, giving two funds away for free surely won't break the bank at Fidelity. As a matter of fact, one of the new "free" funds previously had a fee of 3/100 of 1% (.03%). That's $3 per year on $10,000, whoopee! I don't see Fidelity making a splash lowering their fees on their hundreds of other funds, some of which carry costs one-hundred times higher! They're hoping investors won't know the difference. This is likely since the majority of so-called no-load fund investors already believe (wrongly) that these funds were free to begin with. This is unlikely to change much. The scenario feels eerily similar to the old days of free toasters for buying a CD at a bank. The CD may offer an awful return, with awful tax characteristics on interest, buy hey, you got a free toaster.