Fidelity isn't backing down in its battle with Vanguard. The Boston Behemoth effectively made the fee cuts in its index funds permanent by amending its contracts so any increase would require shareholder approval. At 10 basis points, the fees charged by Fidelity for its broad market U.S. index fund are well below those of Vanguard and in the ballpark of ETFs.

Fidelity offers investors a total of nine index funds with more than $47 billion in assets as of December 31, 2004.

Vanguard charges investors 18 basis points for regular shares in its flagship index fund and 9 basis points for Admiral shareholders with accounts worth more than $250,000.

Fidelity initially cut its fees last August. At that time, Vanguard executives responded to Fidelity's move by pointing out that Fidelity had retained the option of returning the fees to their former levels.

"Despite questions raised by our competitors as to our commitment to low index fund fees, investors responded enthusiastically and since then have entrusted Fidelity with more than $2 billion in new index fund assets," said Jeff Carney, president, Fidelity Personal Investments.

Fidelity is charging 10 basis points for five funds that saw fee cuts last year. Those funds include Fidelity Spartan 500 Index Fund, Fidelity Spartan U.S. Equity Index Fund, Fidelity Spartan Total Market Index Fund, and Fidelity Spartan Extended Market Index Fund.

It will also levy a 10 basis point fee on the VIP Index 500 Portfolio.

Expenses on the Spartan International Index Fund will be contractually capped at 20 basis points, although Fidelity said it would voluntarily cap expenses at 10 basis points.

"Fidelity is firmly committed -- in no uncertain terms -- to providing investors with high-quality index funds that are not only among the lowest cost in the market, but also contractually bound to stay that way," added Carney.  

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