FNILX vs FXAIX: Which Fidelity Mutual Fund is Better? - Physician on FIRE (2024)

FXAIX (Fidelity 500 Index Fund) and FNILX (Fidelity Zero Large Cap Index Fund) are two mutual funds offered by Fidelity. These mutual funds aim to provide similar returns as the largest companies in the U.S. stock market.

FXAIX approaches this by using the S&P 500 as an index. FNILX has a slightly different approach, investing in the 500 largest market capitalization companies in the United States.

In this post, we’ll compare FNILX and FXAIX’s key differences: longevity, expense ratio, performance, tax efficiency, and diversification strategy.

What is FNILX?

FNILX (Fidelity Zero Large Cap Index Fund) aims to reflect the performance of U.S large market capitalization companies by investing in roughly the largest 500 companies/stocks in the U.S. market.

The FNILX mutual fund is unique because it is part of Fidelity’s family of 0.00% expense ratio mutual funds. In addition to having no cost, there are also no minimum investment requirements, making it perfect for all investment levels, including beginners.

What is FXAIX?

FXIAX is the Fidelity 500 Index fund, a mutual fund offered by Fidelity that uses a market capitalization-weighted index of 500 common stocks to generate similar returns as the S&P 500.

FNILX vs. FXAIX: Which mutual fund is better?

Diversification – Tie

As mentioned, FXAIX aims to generate similar returns as the S&P 500, which is an index fund that tracks the 500 largest public companies. FNILX on the other hand, is an index of large capitalization stocks, particularly the largest 500 U.S. companies.

While they don’t follow the same methodology, conceptually, the approach generates nearly the same results.

Below, we can see the portfolio distribution by industry as of August 31, 2023

Source: FXAIX, FNILX

Above, you can see that FXAIX and FNILX have nearly identical portfolio distribution by industry.

We can also see below the distribution of each portfolio’s top 10 holdings as of August 31, 2023.

Source: FXAIX, FNILX

Looking at the top 10 holdings between FXAIX and FNILX, we can see they are very similar. Both hold the exact same stocks as their top holdings, and those top 10 holdings account for roughly 30% of both funds. The difference is marginal, with the top 10 stocks comprising 30.76% of FXAIX and only 30.05% of FNILX.

Minimum Investment – Tie

Both FXAIX and FNILX are Fidelity mutual funds that have no investment minimums. In fact, all Fidelity money market mutual funds are unique because they have no investment minimums, while many other mutual funds from other brokers have higher investment minimums.

Expense Ratios – Slight Edge to FNILX

Fidelity Zero Large Cap Index Fund or FNILX is a part of an exclusive Fidelity offering with $0 minimum investment minimum and 0% expense ratios.

FXAIX, on the other hand, has an expense ratio of 0.02%. Generally, an expense ratio of 0.02% is very low compared to other mutual funds.

While 0.02% is slightly higher than 0.00%, FINLX has a clear edge because you will never have to pay any fees for holding the mutual fund shares. Over time, the saved money on not paying any fees can have a meaningful impact on your investment returns.

Trading and Liquidity – Tie

The biggest impact on the trading and liquidity of an investment option is its structure. Both FNILX and FXAIX are mutual funds, which means they will have the same level of trading and liquidity.

unlike individual stocks and ETFs, mutual funds like FNILX and FXAIX can only be traded based on NAV at the end of the day.

That said, this feature should not impact you unless you like to trade actively throughout the day.

Performance and Dividends – Slight Edge to FXAIX

FNILX and FXAIX have a similar portfolio composition and risk rating, which should generate similar returns.

Let’s look at the total annual returns for each mutual fund. Since FNILX is a relatively new mutual fund with an inception date of 2018, we will compare these two from 2019 to 2023.

Source:FXAIX,FNILX

The table above shows that FXAIX has had a clear advantage over the last two years regarding average total returns. However, as of September 30, 2023, FNILX has a slight advantage for the year. That said, at the time of this writing, there are still a couple of months left for 2023, and overall performance can still change.

Now, let’s look at the cumulative return for both funds.

Source:FXAIX,FNILX

From the table above, we can see that FXIAX has an advantage over the long term. Over a 1 year stretch, FXAIX and FNILX have very similar performance.

Finally, let’s examine the dividend yield performance for both funds.

The table shows that, Since 2019, FXAIX has outperformed FNILX by at least 0.20%. From 2019 the difference in performance has consistently decreased but as of 2023 FXAIX still has a clear advantage.

It’s crucial to assess the overall financial goals and tax considerations of the individual investor when evaluating the performance of these funds. While FXAIX may demonstrate stronger total return performance, the impact of taxes on dividends should not be overlooked, as it can significantly affect the net returns for investors in different tax situations.

Tax Efficiency – Slight Advantage to FXIAX

As investors, it’s always important to consider the tax efficiency and tax loss harvesting ability with an investment choice. Since FNILX and FXAIX are both mutual funds, they will have the same tax efficiency and tax loss harvesting options.

In particular, both mutual funds will have a similar tax efficiency since they are both mutual funds and because they have a very similar portfolio composition.

That said, although FXAIX has a higher dividend yield, this can be a slight disadvantage, as the after-tax return is lower for FXAIX when owned outside of tax-advantaged accounts. It’s important to consider the type of account you are holding the mutual fund in and what tax efficiencies that account adds to each mutual fund when considering their tax efficiency.

Tax Loss Harvesting – Tie

Tax-loss harvesting is a strategy that involves selling investments at a loss to offset gains (and up to $3,000 in ordinary income). This strategy can be implemented for any investment type, including mutual funds and ETFs.

FNILX and FXAIX are mutual funds and, as a result, have the same tax loss harvesting rules and are better than other investment options such as stocks or ETFs. Mutual funds are only traded after the market closes. When you sell mutual funds, you can have funds scheduled to be reinvested on the same day. This allows you to harvest tax losses and reinvest your funds the same day.

FNILX and FXAIX allow you to implement tax-loss harvesting; neither has an advantage here.

FXAIX vs. FNILX: Which One Should I Invest In?

Ultimately, deciding whether to invest in FNILX or FXAIX will depend on your preferred diversification strategy and the value you place on the longevity and performance of a mutual fund.

FXAIX and FNILX approach their diversification differently, although they produce very similar returns.

FXAIX aims to generate similar returns as the S&P 500 while FNILX invests in approximately 500 large market capitalization U.S companies.

Regarding longevity, it’s vital to remember that FNILX was created in 2018, while FXAIX was founded in 1988. As such, FXAIX has a longer history that allows you to compare its performance to its target benchmark.

Finally, FXAIX has a slight edge regarding performance for average annual returns, cumulative returns, and dividend yield. It’s important to note that there are only five years to compare since FNILX was created in 2018. And, while FXAIX has outperformed FNILX over the last five years, the difference in performance has been steadily decreasing and increasingly marginal.

I’ll also point out that while FXAIX had outperformed FNILX in terms of dividend yeild, this could be a disadvantage for high earners. For high-income professionals, smaller is better in a taxable account. Dividends in a tax-advantaged account are immaterial.