What are 12b-1 fees?

Named after Rule 12b-1 of the Securities and Exchange Commission (SEC), 12b-1 fees are additional payments charged to mutual fund investors. They cover costs related to promoting and selling the fund’s shares and are billed as part of a mutual fund's expense ratio. 12b-1 fees are typically deducted from a shareholder's investment balance annually.

What is a 12b-1 fund?

12b-1 funds take a portion of investment assets held and use them to pay expensive fees and distribution costs. These costs are included in the fund's expense ratio and are described in the prospectus. 12b-1 fees are sometimes called a “ level load .” A 12b-1 fund carries a 12b-1 fee, which covers a fund's sales and distribution costs.

Can a mutual fund charge 12b-1 fees?

Unfortunately, since mutual funds are more popular these days, the continued charging of 12b-1 funds has been questioned. The SEC regulates an investment company’s right to charge 12b-1 fees. It also limits the maximum percentage of net assets these companies can charge for a mutual fund’s 12b-1 fees.