12B-1 Fees

What does it mean?
A provision that allows a mutual fund to collect a small fee from investors. This fee is designated for promotions, sales, or any other activity connected with the distribution of the fund's shares. The fee must be reasonable: 0.5% to 1% of the fund's net assets, and up to a maximum of 8.5% of the offering price per share.

In Other Words...
Originally the 12b-1 fee was thought to help investors. It was believed that by marketing a mutual fund its assets would increase. This would ultimately lower management expenses because the cost would be spread out among more investors. However, like the Loch Ness monster, this has yet to be proven. Most of the time the 12B-1 is just a way for fund companies to impose hidden costs on investors.

Most mutual funds with 12B-1 fees in excess of 0.25% are classified as a load fund

Related Links
Mutual Fund Fees - An article by the Securities and Exchange Commission on fees and loads involved with mutual funds.

Mutual Fund Basics Tutorial - Learn about the basics--and the pitfalls!--of investing in mutual funds.

Related Terms
12B-1 Plan | Contingent Deferred Sales Charge - CDSC | Expense Ratio | Front End Load | Load Fund | Mutual Fund

1 | A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z