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12b-1 Fund

12b-1 Fund

What Is a 12b-1 Fund?

A 12b-1 fund is a mutual fund that charges its holders a 12b-1 fee. A 12b-1 fee pays for a mutual fund's distribution and marketing costs. It is many times utilized as a commission to brokers for selling the fund.

12b-1 funds take a portion of investment assets held and use them to pay costly fees and distribution costs. These costs are remembered for the fund's expense ratio and are depicted in the prospectus. 12b-1 fees are here and there called a "level load."

Figuring out 12b-1 Funds

The name 12b-1 comes from the Investment Company Act of 1940 Rule 12b-1, which allows fund companies to act as merchants of their own shares. Rule 12b-1 further states that a mutual fund's own assets can be utilized to pay distribution charges.

Distribution fees incorporate fees paid for marketing and selling fund shares, for example, compensating brokers and other people who sell fund shares and paying for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales writing. The SEC doesn't limit the size of 12b-1 fees that funds might pay, however under FINRA rules, 12b-1 fees that are utilized to pay marketing and distribution expenses (instead of shareholder service expenses) can't surpass 0.75% of a fund's average net assets each year.

12b-1 Fees

A few 12b-1 plans likewise approve and incorporate "shareholder service fees," which are fees paid to people to answer investor requests and furnish investors with data about their investments. A fund might pay shareholder service fees without taking on a 12b-1 plan. On the off chance that shareholder service fees are part of a fund's 12b-1 plan, these fees will be remembered for this category of the fee table.

On the off chance that shareholder service fees are paid outside a 12b-1 plan, they will be remembered for "Different expenses" category, examined below. FINRA forces an annual 0.25% cap on shareholder service fees (whether or not these fees are authorized as part of a 12b-1 plan).

Initially, the rule was planned to pay advertising and marketing expenses; today, nonetheless, a tiny percentage of the fee will in general go toward these costs.


0.75% is the current maximum amount of a fund's net assets that an investor can be charged as a 12b-1 fee.

Special Considerations

12b-1 funds have fallen undesirable in recent years. The growth in exchange-traded fund (ETF) options and the subsequent growth of low-fee mutual fund options has given consumers an extensive variety of option. Strikingly, 12b-1 fees are viewed as a dead weight, and specialists accept consumers who shop around can find comparable funds to ones charging 12b-1 fees.


  • When well known, 12b-1 funds have lost investor interest in recent years, particularly in the midst of the rise of exchange-traded funds (ETFs) and low-cost mutual funds.
  • A 12b-1 fund conveys a 12b-1 fee, which covers a fund's sales and distribution costs.
  • This fee is a percentage of the fund's market value, rather than funds that charge a load or sales fee.
  • 12b-1 fees incorporate the cost of marketing and selling fund shares, paying brokers and different sellers of the funds, as well as advertising costs, for example, printing and mailing fund prospectuses to investors.