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.