12B-1 Fund

DEFINITION of '12B-1 Fund'

A type of mutual fund that charges its holders 12B-1 fees instead of up-front or back-end commissions. 12B-1 funds take a portion of assets held and use them to pay expense fees and distribution costs. These costs are included in the fund's expense ratio and are described in the prospectus.

BREAKING DOWN '12B-1 Fund'

The name 12B-1 comes from the Investment Company Act of 1940's Rule 12B-1, which allows fund companies to act as distributors of their own shares. Rule 12B-1 further states that a mutual fund's own assets can be used to pay distribution charges. Originally, the rule was intended to pay advertising and marketing expenses; today, however, a very small percentage of the fee actually goes toward these costs.

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RELATED FAQS
  1. Why is the 12b-1 fee controversial?

    Learn about the 12b-1 fee that is applied to many mutual funds, and why a large number of analysts and investors question ... Read Answer >>
  2. What action is the SEC likely to take on 12b-1 fees?

    Read about what actions the SEC may take with regard to 12b-1 fees, and for what purposes these types of fees can be used ... Read Answer >>
  3. What is considered a reasonable 12b-1 fee?

    Learn what is generally considered to be a reasonable 12b-1 fee, what these fees are charged for and how these fees are regulated. Read Answer >>
  4. What is the 12b-1 fee meant to cover?

    Understand what a 12b-1 fee is and what it's meant to cover. Learn about how the fee works and what personal investors should ... Read Answer >>
  5. When an investor reads that a mutual fund charges 12(b)-1 fees ...

    The correct answer is a. Statement III describes the nature of 12(b)-1 fees. They are named after the SEC regulation that ... Read Answer >>
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