A 12b-1 fee is a type of fee that is charged by some mutual funds to cover the costs of marketing and distribution expenses. The fee is named for the SEC rule that allows for its assessment, SEC Rule 12b-1. The fee is expressed as a percentage of the fund’s assets, and is typically between 0.25% and 1% per year.
The 12b-1 fee is used to cover the costs of distribution and marketing expenses associated with the fund, such as the cost of advertising, printing and mailing prospectuses, and compensation for the financial professionals who sell the fund. It is also used to pay for other expenses related to promoting and maintaining the fund, such as paying for research and due diligence on potential investments.
It’s important to note that not all mutual funds have 12b-1 fees, and some funds may have lower or higher fees than others. The fee is disclosed in the fund’s prospectus, and investors should be aware of the fee when considering investing in a mutual fund. It can have an impact on the overall returns of the fund, and also it can be taken as a sign of a more active marketing and distribution strategy.
It’s also worth mentioning that some investors prefer to invest in “no-load” funds, which don’t charge 12b-1 fees or sales charges, and usually have lower expense ratios.