12B-1 Fee

AAA

DEFINITION of '12B-1 Fee'

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

INVESTOPEDIA EXPLAINS '12B-1 Fee'

Back in the early days of the mutual fund business, the 12b-1 fee was thought to help investors. It was believed that by marketing a mutual fund, its assets would increase and management could lower expenses because of economies of scale. This has yet to be proved. With mutual fund assets passing the $10 trillion mark and growing steadily, critics of this fee, which today is mainly used to reward intermediaries for selling a fund's shares, are seriously questioning the justification for using it. As a commission paid to salespersons, it is currently believed to do nothing to enhance the performance of a fund.

RELATED TERMS
  1. Costs And Expenses

    As related to mutual funds, it is one of the principal criteria ...
  2. Management Fee

    A charge levied by an investment manager for managing an investment ...
  3. Load Fund

    A mutual fund that comes with a sales charge or commission. The ...
  4. Front-End Load

    A commission or sales charge applied at the time of the initial ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. Level Load

    An annual charge deducted from an investor's mutual fund assets ...
RELATED FAQS
  1. What kinds of expenses are included in the expense ratio?

    Investors who utilize mutual funds or exchange-traded funds (ETFs) in their investment strategies must take into consideration ... Read Full Answer >>
  2. Are mutual fund performance numbers reported net of fees (operating expenses and ...

    The answer depends on how you define "operating expenses."Let's look at a cinematic metaphor to clear up this apparent ambiguity. ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  2. Retirement

    The Hidden Costs Of Investing In Mutual Funds

    Find the hidden fees in your portfolio, so that you can increase your rate of return.
  3. Mutual Funds & ETFs

    Stop Paying High Mutual Fund Fees

    Discover how investment strategies and expense ratios impact your mutual fund's returns.
  4. Retirement

    The ABCs Of Mutual Fund Classes

    Do you understand how the various types of shares differ? We give you the pros and cons of each.
  5. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  6. Mutual Funds & ETFs

    How To Choose The Right ETF?

    Choosing the right ETF really isn’t that complicated. If you stay focused on a few key areas, you may find the experience to be much easier.
  7. Bonds & Fixed Income

    How to Diversify with Muni Bond ETFs

    Thinking of diversifying with bonds? Consider these muni bond ETFs.
  8. Mutual Funds & ETFs

    How To Build A Bond Ladder?

    Bond laddering is a strategy used when building a portfolio: an investor can spread out interest rate risk and create a stream of cash flows for income.
  9. Fundamental Analysis

    How Investment Risk Is Quantified

    FInancial advisors and wealth management firms use a variety of tools based in Modern portfolio theory to quantify investment risk.
  10. Investing

    Rethinking About Retirement Investing?

    There are plenty of reasons to rethink your retirement investing, wherever you fall on the spectrum between fatalistic acceptance and cheerful confidence.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center