Purpose
The zero fret is primarily used to reduce production costs. The zero fret was commonly (but not exclusively) associated with cheaper instruments, since the cost of the labor involved in making a nut with slots carefully filed to the correct height is greater than the labor required to install a zero fret. Some manufacturers that frequently use(d) a zero fret are MTD (Michael Tobias Design), Gretsch, Kay, Selmer, Höfner, Mosrite, Framus and Vigier. Now very few manufacturers use this design and those who do list it as a feature.
It is claimed that with a zero fret, the sound of an open string more closely approximates the sound of a fretted string as compared to the open string sound on a guitar with no zero fret. Countering this claim are musicians who feel that a bone or even synthetic nut will enhance the overall tone of the instrument regardless of the string being played open or fretted. Since tone is so subjective, the two claims are likely to continue perpetually.
Steinberger uses a zero fret with their headless guitars. Strings are mounted in place where the head would normally be, so there is no need for the string guides that the nut provides.
Read more about this topic: Zero Fret
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