No More Free Money - X.com Ends Rebate Program By IndexFunds.com Staff May 25, 2000

Just six months after launching the fund that paid you to invest, x.com announced it was ending the program.

In November of 1999, x.com opened an S&P 500 index fund that not only waived fees, but gave investors a payment of 0.01%, capping investment at $15,000. Apparently concluding that giving away money was not the best way to make it, x.com announced the termination of the program.

Not only will investors no longer receive the rebate, a fee structure of 0.15% will be instituted on the fund, which is managed by Barclays. In addition, accounts of less than $5000 will be charged $2 per quarter. Implementation of the new fees will allow x.com to remove the $15,000 limit on investment in the fund.

A quick survey of the new fee structure indicates that for a small investor, the fee change will be significant. If an investor purchased $2000 worth of shares in the fund, he would be charged $8 in fees, which amounts to a stiff 0.40% in addition to the 0.15% fee ratio of the fund. Previously, instead of paying these fees amounting to $11, the same investor got an annual windfall of 20 cents.

For an investor of $5,000 or more, though, the 0.15% expense ratio is still a bargain, with only the Vanguard 500 fund's 0.18% expense ratio a rival among open-ended mutual funds. Spiders and iShares, and likely the soon-to-be-released Vanguard Vipers among exchange-traded funds have lower fees, but involve brokerage commissions when shares are purchased.

X.com recently merged with PayPal internet banking and financial service, which initially paid customers $10 to sign up for its Internet payment plan and also paid $10 for anyone who got another person to sign up for the service. The reward has since been scaled back to $5. Paypal makes its money through interest gathered from money in its accounts. The index fund will now make money from fees. More than $1 billion moves through the company every year.

IndexFunds.com Staff