Vanguard cuts investment minimums in escalating price war

The move follows Fidelity's debut of zero-fee index funds and the 40% drop in overall fund fees over the past two decades

Nov 19, 2018 @ 2:31 pm

By Greg Iacurci

Vanguard Group cut investment minimums across dozens of index funds Monday, giving a greater number of investors access to its lowest-cost retail share class and escalating an ongoing battle among money managers to slash costs in a bid to attract more customers.

The asset manager lowered the investment minimum associated with its Admiral shares to $3,000 — down from $10,000 — across 38 index funds.

Among the funds affected are the industry's largest equity-index-tracking funds, the company said: the $708 billion Vanguard Total Stock Market Index Fund and $431 billion Vanguard 500 Index Fund.

Vanguard's latest volley comes on the heels of rival Fidelity Investments' launch of four funds with an expense ratio of zero, making the funds free for investors to access from a cost standpoint. Fidelity also cut fees on several other stock and bond index funds, dropping some expense ratios to as low as 0.015%.

Mutual fund fees overall have declined dramatically over the past two decades. In 2017, equity mutual funds had an average asset-weighted expense of 0.59%, a 40% drop from the nearly 1% expense in 2000, according to the Investment Company Institute.

This past summer, Vanguard also announced it would expand commission-free online transactions to 1,800 exchange-traded funds, up from 77.

Vanguard offers three share classes to investors. Investor shares have an average 0.18% expense ratio, while Admiral shares have an average 0.11% expense ratio. The reduced minimums to access Admiral shares provide cost savings ranging from 15% to 71% when compared with Investor shares, depending on the specific fund, according to Vanguard.

Vanguard also offers institutional shares, which have an average 0.05% expense ratio but are used primarily in institutional settings given their $5 million minimum investment.

Vanguard still requires higher investment minimums to access Admiral shares for other types of funds: The minimum is $50,000 for most actively managed mutual funds and $100,000 for some sector-specific index funds.

(More: Vanguard suffers decline in consumer satisfaction)

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