WHITE PAPER / EXPENSE RATIOS
2026 edition
WRAPPER COSTS
What you actually pay, by the basis point
Industry averages, the cheapest funds in each category, and a calculator that shows what a single basis point compounds to over decades.
FIG. A / 2025 INDUSTRY AVERAGES
The headline number is misleading
The Investment Company Institute (ICI) reports that the asset-weighted average expense ratio of equity mutual funds runs around 0.40% while index equity ETFs run around 0.14%. That makes ETFs sound dramatically cheaper. The catch: the mutual fund average is dragged up by actively managed funds, which charge real fees. Index mutual funds compete head-to-head with index ETFs and run within a basis point or two of each other.
The honest comparison is index-to-index. By that measure, the wrapper choice is close to free. The cost difference that matters is index-versus-active, which is a portfolio decision rather than an ETF-versus-mutual-fund decision.
Reported averages from Investment Company Institute analyses. The wide gap collapses once you strip out actively managed funds.
FIG. B / CHEAPEST IN EACH CATEGORY
The lowest-cost option, by category
VOO / IVV
0.03%
FXAIX (Fidelity)
0.015%
VTI / ITOT
0.03%
FSKAX (Fidelity)
0.015%
VXUS
0.05%
FTIHX (Fidelity)
0.06%
BND / AGG
0.03%
FXNAX (Fidelity)
0.025%
Mutual fund options listed assume access to the issuer's brokerage. Fidelity proprietary funds (FXAIX, FSKAX, FTIHX, FXNAX) are only available in Fidelity accounts.
FIG. 04 / EXPENSE RATIO IMPACT
What does a basis point actually cost?
Compound an expense ratio over decades. The headline result for index funds: usually a few dollars per $1,000 invested. For active funds: tens of thousands.
Inputs
Presets
After 20 years at 0.03% ER
$295,363
After 20 years at 0.04% ER
$294,994
Compounded difference
$369
ETF wrapper ends 0.13% ahead. You contributed $120,000 of new money over 20 years.
Assumes a constant 8% gross annual return compounded monthly. Real returns vary, actual fund returns will differ from index returns by tracking error and other frictions. Illustrative only.
FIG. C / WHY ETFs ARE CHEAPER ON AVERAGE
Structural reasons, mostly stripped away by 2026
ETFs do not maintain shareholder-level recordkeeping. They do not run automatic investment plans, recurring purchases, or phone-based shareholder support at the fund level. All of that lives at the brokerage layer instead. Mutual funds historically did, and that infrastructure cost money. Hence the ETF cost advantage in the early days of the wrapper.
Today, large index mutual funds at Vanguard, Fidelity, and Schwab have closed essentially all of that gap. FXAIX runs at a lower expense ratio than VOO. SWPPX runs at 0.02%, lower than SPY. Within the index space, the wrapper-driven cost advantage has compressed to zero or even reversed for specific products.
FIG. D / ZERO-FEE FUNDS
FZROX, FNILX, and the catch with zero-fee index funds
Fidelity offers the FZROX (total US market) and FNILX (large cap) index funds at a stated 0.00% expense ratio. They are real, low-cost, and operate as legitimate index funds. The catch is not in the price tag. It is in the lock-in: like FXAIX, FZROX is a Fidelity proprietary product and cannot be transferred in kind to another brokerage. To leave Fidelity holding FZROX, you would have to liquidate.
Fidelity also tracks proprietary indexes (Fidelity US Total Investable Market Index, etc.) rather than well-known third-party benchmarks. The actual exposure is similar to any total market or large-cap fund, but tracking error against major benchmarks may be slightly different. For most investors that does not matter.
Bottom line: FZROX and FNILX are fine if you intend to stay at Fidelity for the long haul. If you want a portable index holding that travels between brokerages, an ETF like VTI or ITOT is the safer choice. The 0.03% expense ratio difference is irrelevant against decades of optionality.
DESK Q&A
Frequently asked
Q01Is the average mutual fund really 13x more expensive than the average ETF?
On a headline basis, the gap is large because the mutual fund universe is dragged up by thousands of actively managed funds. Compared head-to-head among index strategies, the wrapper-driven cost difference is close to zero. The active-versus-index choice is a much bigger lever than the ETF-versus-mutual-fund choice.
Q02What is a basis point?
One basis point is 0.01%, or one one-hundredth of a percent. A 0.03% expense ratio is 3 basis points. A 0.40% expense ratio is 40 basis points. Industry conversations about expense ratios use this unit because the differences are too small to discuss in regular percentages without sounding silly.
Q03Why is FXAIX cheaper than VOO if both track the S&P 500?
Fidelity subsidises proprietary index funds with securities lending revenue and the broader profit they earn on Fidelity's cross-sell relationships (cash management, advisory, retirement plan administration). Vanguard's structure is different (a member-owned cooperative). Each issuer can keep expense ratios low through different mechanisms. Both wrappers run cheap enough that the choice should not turn on a fraction of a basis point.
Q04Should I leave VOO for FXAIX to save money?
If you have meaningful unrealised gains in a taxable account, no. The capital-gains tax you would pay to switch will exceed the expense-ratio savings for many years. In an IRA, you can switch tax-free, but the savings are still small. For new contributions, choosing the cheapest fund in your preferred wrapper is reasonable. For existing positions, leave them alone.