What is a 12b-1 fee?

A 12b-1 fee is an annual marketing or distribution fee on a mutual fund. The 12b-1 fee is considered to be an operational expense and, as such, is included in a fund's expense ratio. It is generally between 0.25% and 0.75% (the maximum allowed) of a fund's net assets. The fee gets its name from a section of the Investment Company Act of 1940 .

Do mutual funds have a 12b-1 fee?

Any public mutual fund can impose a 12b-1 fee, regardless of what type of account the fund is held in. As such, funds can be subject to 12b-1 fees if purchased directly, through a broker, or as part of a 401k plan. The 12b-1 fees, however, will vary according to which class of fund shares is purchased.

How much does a 12b-1 fund cost?

In total, 12b-1 fees charged by a fund are capped at 1% annually. The distribution and marketing portion of the fee is limited to 0.75% annually, while the service fee can account for up to 0.25%. These fees are not exclusive to broker-sold shares.