Fidelity offers two REIT index funds that track the same benchmark and hold nearly the same portfolio: the Fidelity Real Estate Index Fund (FSRNX), a mutual fund with a 0.07% expense ratio, and the Fidelity MSCI Real Estate Index ETF (FREL), its exchange-traded counterpart at 0.084%.1Fidelity Investments. Fidelity Real Estate Index Fund – FSRNX The choice between them comes down to how you prefer to trade. The bigger decision is where you hold either one, because REIT dividends are taxed as ordinary income and can drag on returns in a regular brokerage account.
What You Are Actually Buying
Both funds track the MSCI US IMI Real Estate 25/25 Index, which covers the full range of publicly traded U.S. real estate companies. The “25/25” is a concentration cap: no single company can exceed 25% of the index, and companies weighted above 5% cannot collectively exceed 50%. That rule keeps any one giant REIT from dominating the fund.
Underneath, you are buying Real Estate Investment Trusts. A REIT is a company that owns income-producing property and is required by federal tax law to distribute at least 90% of its taxable income to shareholders each year.2Office of the Law Revision Counsel. 26 USC 857 – Taxation of Real Estate Investment Trusts and Their Beneficiaries That mandatory payout is why REIT funds carry higher dividend yields than the broader market. FSRNX and FREL have both recently yielded around 3%.
The top holdings show where U.S. real estate has moved. As of early 2026, the largest positions include Prologis (about 8.4%), Welltower (8.1%), American Tower (5.7%), Equinix (5.1%), and Simon Property Group (4.3%). Realty Income, Digital Realty Trust, Public Storage, CBRE Group, and Crown Castle follow. Logistics warehouses, cell towers, data centers, and healthcare properties carry more weight than traditional offices and malls. If you were expecting apartment buildings and shopping centers, the reality is closer to infrastructure supporting e-commerce and cloud computing.
FSRNX or FREL: Which One to Pick
Since both funds hold the same companies, the decision is mechanical.
Cost
FSRNX charges 0.07%, or $7 a year per $10,000 invested.1Fidelity Investments. Fidelity Real Estate Index Fund – FSRNX FREL charges 0.084%, or about $8.40. On a $100,000 balance, the gap is roughly $14 a year. It compounds, but it will not be the deciding factor for most people.
How Orders Fill
FSRNX is a mutual fund. Orders execute once a day at the closing net asset value, and you buy in dollar amounts. FREL is an ETF that trades throughout the day like a stock, in share quantities, and it accepts limit orders. For a single lump-sum purchase, the difference barely matters. If you want intraday pricing or the ability to set a maximum purchase price, FREL gives you that.
Minimums
FSRNX has no minimum initial investment.1Fidelity Investments. Fidelity Real Estate Index Fund – FSRNX FREL requires at least one share, which has recently traded around $27. Neither is a barrier.
Short-Term Trading Fees
Fidelity may charge a short-term trading fee on mutual fund shares sold soon after purchase. FREL, as an ETF, does not carry that fee, though you still face the normal bid-ask spread on any trade. If you plan to hold for years, this is not something to worry about.
Dividend Reinvestment Defaults
FSRNX reinvests dividends and capital gains into more shares by default. FREL pays dividends as cash by default. You can change either setting in your Fidelity account under Positions and Manage Dividends.3Fidelity. How to Reinvest Dividends and Capital Gains REIT funds throw off substantial income, and reinvesting it compounds returns without any manual work. If you buy FREL, change the default.
Why the Account Type Matters More Than the Fund
Most dividends from a REIT index fund are ordinary (non-qualified) dividends. Unlike qualified dividends from typical stock funds, which are taxed at the lower long-term capital gains rate, REIT dividends are taxed at your full marginal income tax rate, which tops out at 37% for 2026.4Internal Revenue Service. Federal Income Tax Rates and Brackets Even in the 22% or 24% bracket, that is a meaningful drag compared with a total stock market fund.
The Section 199A qualified business income deduction softens this by allowing you to deduct up to 20% of the qualified REIT dividends you receive.5Internal Revenue Service. Qualified Business Income Deduction The deduction was originally scheduled to expire after 2025 but was made permanent by the One Big Beautiful Bill Act. At the 24% bracket, the effective federal rate on REIT dividends drops to about 19.2%. Higher earners also face the 3.8% Net Investment Income Tax above modified adjusted gross income of $200,000 single or $250,000 married filing jointly, and those thresholds are not indexed for inflation.6Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
The practical takeaway: a REIT index fund is one of the least tax-efficient investments to hold in a regular taxable brokerage account. Holding it inside a tax-advantaged account eliminates or defers that annual tax drag.
- Roth IRA. Dividends grow and come out completely tax-free in retirement. The 2026 contribution limit is $7,500, or $8,500 if you are 50 or older. This is the best home for a REIT fund.7Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
- Traditional IRA. Dividends are tax-deferred; withdrawals in retirement are taxed as ordinary income. Same $7,500 contribution limit.
- 401(k) or 403(b). If your employer plan offers a REIT index option, the same tax deferral applies. The 2026 elective deferral limit is $24,500.
A common approach is to keep your REIT allocation inside an IRA and hold more tax-efficient investments, like a total stock market index fund, in your taxable account.
Risks to Know Before You Buy
Interest Rate Sensitivity
REIT share prices often fall when interest rates rise, because their yields look less attractive against bonds and because higher borrowing costs pressure property companies with debt. That said, historical data from 1992 through 2024 show REITs posting positive average returns across low, medium, and high rate environments.8Nareit. REITs Historically Outperform in Different Interest Rate Environments Short-term swings can be sharp; long-term holders have generally been rewarded.
Sector Concentration
The index is market-cap weighted, and the top ten holdings account for nearly half the fund’s assets. The 25/25 cap keeps any single company from dominating, but it does not protect against an entire subsector falling out of favor. If data center demand slows or warehouse construction outpaces tenants, the largest positions can pull the whole fund down.
Not the Same as Owning Property
A REIT index fund gives you diversification, daily liquidity, and no management work. You do not get depreciation deductions, 1031 exchanges, or any say over what properties get bought or developed. For most investors that trade is favorable, but it is worth naming.
A Note on International Real Estate
Both FSRNX and FREL are U.S.-only. Fidelity’s international option, the Fidelity International Real Estate Fund (FIREX), is actively managed with a 0.88% expense ratio, and Fidelity does not currently offer a low-cost international REIT index fund. If geographic diversification matters, other fund families offer cheaper international REIT index products, or a total international stock fund will pick up some real estate exposure indirectly.
How to Buy Either Fund at Fidelity
You need a Fidelity account. If you do not have one, open a Roth IRA, Traditional IRA, or taxable brokerage account on Fidelity’s site and link a bank account to fund it. Given the tax treatment above, the IRA is usually the better container.
For FSRNX, search the ticker, select Buy, and enter a dollar amount. The order fills at the day’s closing price, and there is no minimum. For FREL, search the ticker and place a stock order. A limit order lets you set the maximum price you will pay and is generally the better choice, particularly in volatile sessions. A market order fills immediately at whatever the current price is.
Once you own either fund, go to Positions, then Manage Dividends, and confirm distributions are set to reinvest.3Fidelity. How to Reinvest Dividends and Capital Gains For FREL, this requires changing the default from cash. Because REIT funds pay substantial dividends, reinvestment is where a lot of the long-term return comes from.