State Street Boston Corp. has completed an end-of-the-year deal to provide custody services for the world's largest mutual fund.

Last week, the banking company was awarded the custody contract for Fidelity Investments' $53 billion-asset Magellan Fund. State Street replaces Brown Brothers Harriman & Co., which had been custodian for the portfolio since 1963.

The deal gives a major boost to State Street's custodial relationship with Fidelity. Previously, State Street performed custody services for three small Fidelity portfolios totaling $4 billion in assets.

A Fidelity spokeswoman would not discuss the arrangement in detail, but said the decision to switch custodians came after a periodic review by the Magellan Fund's board of trustees in December.

She added that the fund company expects to complete the custody transfer to State Street in the first half of 1996.

The custody business, which includes financial settlements and often some accounting as well, is a low-margin business dominated by a few institutions such as State Street, Chase Manhattan Corp., and Bankers Trust New York Corp.

Indeed, State Street is the largest mutual fund custodian in the country, with more than $1.1 trillion of assets under custody now.

Custodians usually charge 2 basis points of assets for their services, some experts estimate, with between one-half and three-quarters of a basis point going to pay for costs.

Even so, the immense size of the deal with Fidelity could result in more than $10 million in fee revenue for State Street.

More important, clinching this contract with Fidelity, one of the country's largest mutual fund companies, may help State Street land other contracts with the fund giant.

"I'm sure this contract was hotly contested," said Geoffrey H. Bobroff, a mutual fund consultant in East Greenwich, R.I. "This deal helps boost State Street's competitive standing even higher."

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