Mutual funds typically charge between .25% and 1% in 12b-1 fees for marketing, distribution and administration expenses. The fee gets its name from the 1980 Securities and Exchange Commission (SEC) rule 12b-1.Although the SEC does not limit the fees, the National Association of Securities Dealers (NASD) does. For instance, the NASD caps annual administrative expense fee charges at .25% of the net fund assets. In addition, the NASD allows a fund to call itself a “no-load” fund as long as its annual fee is .25% or less. 12b-1 fees may seem trivial in the short term, but they add up over time and can reduce returns. For example, a $10,000 investment in a mutual fund that earns 7% per year almost doubles to $19,671.51 after 10 years. However, if the fund has a 12b-1 fee of 1%, the original $10,000 investment only grows to $17,908.48. That’s a loss of over $1,700 to the investor. According to the SEC, the original purpose for 12b-1 fees was to provide incentives to brokers to distribute more mutual funds, thereby creating economies of scale that would lower the average fee cost per dollar invested. The resulting lower expense ratios would then create higher expected returns for investors. In reality, however, the SEC’s data shows that expense ratios for funds with 12b-1 fees experience higher expense ratios, and the services rendered to earn the fees do not enhance the fund’s performance enough to justify the fees.