What is a 12B-1 Fee?

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  • Written By: K.M. Doyle
  • Edited By: W. Everett
  • Last Modified Date: 10 September 2019
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A 12B-1 fee is a marketing or distribution fee charged to investors by a mutual fund to pay for annual marketing expenses. Information on the amount of a fund’s 12B-1 fee and what it is used for is included in the fund’s prospectus. A 12B-1 fee is considered an operational expense.

A 12B-1 fee is included in the fund’s total expense ratio, which is the percentage of the fund’s average net assets. The total expense ratio also includes the management fee and various other operating costs that the fund incurs. According to the SEC, the 12B-1 fee can not be greater than 1 percent of a fund’s net assets, and it usually ranges from 0.25 to 1 percent.

In addition to the 12B-1 fee, most mutual funds incur sales charges, which are paid to brokers for selling the fund. If the sales charge is paid when the fund is purchased, the fund is called a front-end load fund. If the sales charge is paid when the investor sells the fund, it is a back-end load fund. Sales charges are not part of a fund’s operating expenses. They are paid from the initial investment, in the case of a front-end load, or from the proceeds of the sale of the fund, in the case of a back-end load. Back-end load charges sometimes decline over time, so the longer the fund is owned, the lower the charge when it is sold.


Some funds, which are known as 12B-1 Plan funds, can use fund assets to pay the distribution charges for the fund and therefore do not charge a sales fee. These funds assess an annual fee based on the current value of the fund. This is sometimes known as a hidden load, because it is not as obvious to the investor as a sales charge might be. The fee itself may be known as a level load, because it is assessed at the same percentage each year. The amount of the fee will increase as the value of the fund increases, however, so these charges can significantly impact the return of the fund.

All expenses related to the fund are disclosed in the prospectus of the fund. The prospectus document must be supplied to the investor prior to or at the time of purchase. The investor should read and understand the prospectus, particularly those sections that refer to fees and sales charges. Identifying those funds which have the most attractive relationship between fees and performance can be very beneficial in terms of the return on investment.


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