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Watch for Falling Fees

There are bargains aplenty in the mutual fund world.

Russel Kinnel, 12/07/2010

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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, more fee cuts are on the way in both actively managed and index funds. 

A Cheer and a Salute for the Admirals
Vanguard has announced de facto cuts by lowering the initial minimum investment for its Admiral share class of index funds to $10,000 from $100,000. In addition, actively managed Admiral shares have had their minimums cut from $100,000 to $50,000. The move means that the 1.8 million investors will save on fees.

The reductions apply to both stock and bond funds. For example, the expense ratio for Vanguard Total Stock Market Index drops from 0.18% for the Investor class (symbol VTSMX) to 0.07% for the Admiral class (VTSAX). For Vanguard 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.PAGEBREAK

Free Mutual Funds
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 negative 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.)

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