Fidelity’s No-Fee Funds Unleash the Power of Free

Fidelity Investments fired a shot heard around the investing world on Wednesday: It announced it would roll out two index mutual funds on Friday that charge no fees.

Both funds will track market cap-weighted Fidelity indexes. The Fidelity ZERO Total Market Index Fund will invest in the largest 3,000 U.S. companies based on float-adjusted market cap, and the Fidelity ZERO International Index Fund will hold the top 90 percent of stocks within various developed international and emerging countries.

It’s tempting to dismiss the move as a marketing stunt. Fidelity doesn’t need the money. I counted more than 1,000 Fidelity mutual funds, including the various share classes, with close to $1.9 trillion in assets and an asset-weighted average expense ratio of 0.46 percent a year. That translates into roughly $9 billion of annual revenue.

And that’s just the beginning, because Fidelity does more than manage mutual funds. As Russel Kinnel, director of manager research at Morningstar, told Bloomberg News, “Fidelity has lots of ways to make money from customers once they are in the door.”

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