Expense Ratios: What You Actually Pay
2026 data on ETF and index fund costs, including zero-fee options.
2025/2026 Industry Averages
0.14%
Average index equity ETF expense ratio
Source: ICI 2025 Report
0.40%
Average equity mutual fund expense ratio
Includes actively managed funds
62%
Decline in mutual fund expense ratios since 1996
The cost race to zero
The Real Story: For Index Funds, the Gap Is Tiny
The headline numbers (0.14% vs 0.40%) are misleading. The 0.40% average includes actively managed mutual funds with high expense ratios. When you compare index-tracking ETFs against index-tracking mutual funds, the difference nearly vanishes.
VOO charges 0.03%. VFIAX charges 0.04%. That is a difference of 1 basis point. On a $10,000 investment over 20 years, that 0.01% gap amounts to roughly $30. Not $30 per year. $30 total.
FXAIX at 0.015% is actually cheaper than any S&P 500 ETF. The narrative that "ETFs are always cheaper" is outdated. The real divide is between index funds (regardless of wrapper) and actively managed funds.
Cheapest Fund by Category (2026)
Note: Fidelity ZERO funds (0.00%) are excluded because they track proprietary indexes, not standard benchmarks.
Why Are ETFs Cheaper on Average?
ETFs have structural cost advantages that explain why they tend to have lower expense ratios, though the big index fund providers have closed most of this gap:
No shareholder accounting
ETFs do not track individual shareholder accounts. Your brokerage does that. Mutual funds must maintain records for every investor, processing purchases, redemptions, and distributions.
No automatic investment infrastructure
Mutual funds must support automatic purchasing, dollar-cost averaging, and systematic withdrawal plans. ETFs outsource all of this to brokerages.
No phone support costs
Mutual fund companies like Vanguard maintain call centers. ETF investors call their broker instead, shifting the support cost.
Competitive pressure
The ETF market has been a fee war for 20 years. New ETF providers use low fees to attract assets, driving the industry average down.
Fidelity ZERO Funds: What Is the Catch?
In 2018, Fidelity launched four mutual funds with 0.00% expense ratios. No fee at all. They are:
FZROX
Total US Market, 0.00%, $0 minimum
FNILX
Large Cap (S&P 500-like), 0.00%, $0 minimum
FZILX
International, 0.00%, $0 minimum
FZIPX
Extended Market, 0.00%, $0 minimum
How Fidelity makes money: Securities lending (lending the underlying stocks for a fee), cross-selling to Fidelity customers (brokerage services, managed accounts, credit cards), and the lifetime value of attracting investors to the Fidelity ecosystem.
The trade-off: These funds track proprietary Fidelity indexes, not standard benchmarks like the S&P 500 or CRSP Total Market. In practice, performance has been nearly identical to the standard indexes. But the funds are only available at Fidelity, creating ecosystem lock-in.
Should you use them? If you invest at Fidelity, they are an excellent option. The 0.00% expense ratio is real and meaningful over decades. Just understand that you are choosing Fidelity lock-in in exchange for zero fees.
Expense Ratio FAQ
Are ETFs cheaper than index funds?
On average, yes. The average index equity ETF charges 0.14% while the average equity mutual fund charges 0.40%. But when comparing equivalent index funds, the gap is tiny. VOO (ETF) charges 0.03% and VFIAX (mutual fund) charges 0.04%. FXAIX, a mutual fund, is actually the cheapest S&P 500 fund at 0.015%.
What are Fidelity ZERO funds?
Fidelity offers four ZERO funds with 0.00% expense ratios: FZROX (total market), FNILX (large cap), FZILX (international), and FZIPX (extended market). The catch: they track proprietary Fidelity indexes rather than standard benchmarks like the S&P 500, and they are only available at Fidelity. Performance has been nearly identical to standard index funds.
How much difference does 0.01% make in expense ratio?
On a $10,000 investment over 20 years at 8% annual return, a 0.01% expense ratio difference amounts to roughly $30. On $100,000, it is about $300. The real cost difference between equivalent ETFs and index funds is this small. The much larger gap is between index funds (0.03-0.15%) and actively managed funds (0.50-1.00%).