DEFINITION of '12B-1 Fund'

A 12b-1 fund is type of mutual fund that charges its holders a 12b-1 fee. A 12b-1 fee is a fee used to pay for a mutual fund’s distribution costs. It is often used as a commission to brokers for selling the fund. 12B-1 funds take a portion of investment 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. 12b-1 fees are sometimes called a “level load.”


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.

12b-1 Distribution Fees

Distribution fees include fees paid for marketing and selling fund shares, such as compensating brokers and others who sell fund shares, and paying for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. The SEC does not limit the size of 12b-1 fees that funds may pay, but under FINRA rules, 12b-1 fees that are used to pay marketing and distribution expenses (as opposed to shareholder service expenses) cannot exceed 0.75% of a fund’s average net assets per year.

Some 12b-1 plans also authorize and include "shareholder service fees," which are fees paid to persons to respond to investor inquiries and provide investors with information about their investments. A fund may pay shareholder service fees without adopting a 12b-1 plan. If shareholder service fees are part of a fund’s 12b-1 plan, these fees will be included in this category of the fee table. If shareholder service fees are paid outside a 12b-1 plan, then they will be included in the "Other expenses" category, discussed below. FINRA imposes an annual 0.25% cap on shareholder service fees (regardless of whether these fees are authorized as part of a 12b-1 plan).

Originally, the rule was intended to pay advertising and marketing expenses; today, however, a very small percentage of the fee tends to go toward these costs.

Popularity of 12b-1 Funds

12b-1 funds have fallen out of favor in recent years. The growth in exchange-traded fund (ETF) options and the subsequent growth of low-fee mutual fund options has given consumers a wide range of option. 12b-1 fees are considered a dead weight, and experts believe consumers who shop around can find comparable funds to ones charging 12b-1 fees.

  1. 12B-1 Plan

    A 12B-1 plan is a plan structured by mutual fund companies for ...
  2. Total Annual Fund Operating Expenses

    Total annual fund operating expenses are a fund's costs, such ...
  3. Load Fund

    Load funds charge fees of less than 1% in order to compensate ...
  4. B-Share

    A B-share is a class of shares offered in an open-end mutual ...
  5. Exchange Fees

    Exchange fees are a type of investment fee that some mutual funds ...
  6. Redemption Fee

    A redemption fee is a fee charged to an investor when shares ...
Related Articles
  1. Investing

    Mutual Fund Fees: Here's What You're Paying For

    It is important to understand mutual funds fees so that you know what you are paying and to whom, and how that impacts your portfolio returns.
  2. Investing

    Consider These Fees When Evaluating Mutual Funds

    The best way to evaluate a mutual fund is by digging a bit deeper into the fees charged.
  3. 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.
  4. Financial Advisor

    What Hiring a Financial Advisor Costs in 2016

    When it comes to the price tag on a financial advisor's services, transparency is often lacking. That's why it's important to do your homework.
  5. Retirement

    Hidden Fees in 401(k)s

    Fees, regardless of how conspicuously they're disclosed, are an important criterion for your 401(k) investments.
  6. Investing

    The Lowdown on No-Load Mutual Funds

    No-load mutual funds let you cut out the middleman—and the fees.
  7. Investing

    Are Hidden Fees Eroding Your Participants’ Return?

    Plan sponsors need to know the fees associated with their plan to determine if they are reasonable.
  8. Investing

    Are Fees Depleting Your Retirement Savings?  

    Each retirement account will have a fee associated with it. The key is to lower these fees as much as possible to maximize your return.
  1. What kinds of fees are involved in futures trading?

    Learn what the various costs are that are charged by brokerage firms and trading exchanges to individual futures trading ... Read Answer >>
Trading Center