DEFINITION of '12B-1 Plan'

A no-load mutual fund that is allowed to use fund assets to pay for its distribution costs. The 12B-1 plan mutual fund is an alternative to paying the sales fees encountered in loaded funds. By charging an annual percentage based on the current value of the investment on an annual basis, investors avoid paying a front-end or back-end load when purchasing or redeeming the fund.

BREAKING DOWN '12B-1 Plan'

The government typically restricts 12B-1 fees to 1% of the current value of the investment on an annual basis, but they generally fall somewhere between 0.25-1%. This fee must be voted on by the mutual fund's directors, and must be disclosed in the mutual fund prospectus. Because this fee is a little less obvious (not an upfront charge like the 12B-1 fee), investors should read mutual fund documentation thoroughly to understand the fees they are paying.

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RELATED FAQS
  1. 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 >>
  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. 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 >>
  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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