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.

RELATED TERMS
  1. 12B-1 Fee

    An annual marketing or distribution fee on a mutual fund. The ...
  2. 12B-1 Plan

    A no-load mutual fund that is allowed to use fund assets to pay ...
  3. Level Load

    An annual charge deducted from an investor's mutual fund assets ...
  4. Load

    A sales charge or commission charged to an investor when buying ...
  5. Expense Ratio

    A measure of what it costs an investment company to operate a ...
  6. C-Share

    A class of mutual fund with a level load. Class C shares don't ...
Related Articles
  1. Investing

    12b-1: Understanding Mutual Fund Fees

    Many mutual funds charge investors a 12b-1 fee to pay for marketing and promotion expenses.
  2. Financial Advisor

    What is a 12b-1 Fee?

    Mutual funds typically charge between .25% and 1% in 12b-1 fees for marketing, distribution and administration expenses.
  3. Financial Advisor

    How Mutual Fund Companies Make Money

    Read about the many different kinds of fees and sales charges mutual fund companies can use to generate revenue from those who invest in their shares.
  4. Investing

    Selling Mutual Funds: What Happens When You Liquidate?

    Learn about the hidden costs that can be triggered when you redeem mutual fund shares. Even no-load funds have fees and expenses you may not know about.
  5. Investing

    Why Are ETF Fees Lower Than Mutual Funds?

    Discover all the reasons ETFs typically have lower fees than mutual funds, including their passive management and the absence of load and 12b-1 fees.
  6. Investing

    The Lowdown On No-Load Mutual Funds

    These funds let you cut out the middleman - and the fees.
  7. Investing

    Trading Mutual Funds For Beginners

    Learn about the basics of trading and investing in mutual funds. Understand how the fees charged by mutual funds can impact the performance of an investment.
  8. Investing

    What is the Importance of a Share's Class?

    The meaning of share classes varies, depending on the investment vehicle.
  9. Investing

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  10. Investing

    What's a No-Load Fund?

    A no-load fund is a type of mutual fund that does not charge a front-end, back-end or level sales charge.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  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 >>
  6. What are some mutual funds that do not have 12b-1 fees?

    Discover some of the most popular and best-performing mutual funds that do not have any 12b-1 fees included in the fund's ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center