Vanguard is expanding access to its lowest-cost mutual fund share class for individual investors, a move that will bring fee reductions to nearly 2 million clients of the nation’s largest fund company.
Vanguard said it is reducing the minimum investment amount to qualify for its Admiral share class, which charges lower investment expenses than its Investor mutual fund shares.
The biggest cuts affect Vanguard’s index funds, which the company pioneered in the late 1970s as low-cost alternatives to actively managed funds relying on human investment-picking expertise. Investors who previously needed to invest at least $100,000 to qualify for Admiral shares can now get in with just $10,000 for Vanguard index funds, which passively track stock or bond market indexes.
For example, Admiral shares of Vanguard’s Total Stock Market Index Fund will charge $7 in annual expenses for every $10,000 invested, provided an investor has at least $10,000 in the fund. That’s down from $18 for Investor shares in the fund.
For Vanguard’s less-popular actively managed funds, the new investment minimum for Admiral shares is $50,000 instead of $100,000.
Vanguard will begin converting qualifying accounts to Admiral shares in coming months, affecting nearly 2 million clients.
Vanguard’s Admiral share class now holds about $340 billion, or about one-quarter of the nearly $1.5 trillion in US mutual fund assets that Vanguard manages. With the expanded access to Admiral shares, that class will grow to $430 billion.
Yesterday’s announcement is the latest in a string of cost-cutting moves this year by Vanguard, which has used its size to become more efficient and drive down expenses, challenging chief rivals Fidelity Investments and Capital Group’s American Funds. In May, Vanguard began offering its brokerage clients commission-free trades in Vanguard exchange-traded funds, a fast-growing business where Vanguard is playing catch-up to rivals like BlackRock Inc.’s iShares ETFs and State Street’s “SPDR’’ ETFs.