12B-1 Fee

A 12b-1 fee is a type of commission charged by mutual fund companies to pay for marketing and distribution costs. These fees are typically deducted from the fund's assets on an ongoing basis, and can range from 0.25% to 1% of the fund's assets per year.

12b-1 fees are controversial because they can reduce the returns of mutual fund investors. For example, a fund with a 1% 12b-1 fee will have lower returns than a similar fund with no 12b-1 fee. This is because the 1% fee is deducted from the fund's assets, which means that investors earn less money on their investments.

In addition, 12b-1 fees are often used to pay for marketing and distribution costs that are not directly related to the performance of the fund. For example, a fund company may use 12b-1 fees to pay for advertising, sales commissions, and other marketing expenses. This can be a problem because it means that investors are paying for marketing and distribution costs that they may not benefit from.

Despite the controversy, 12b-1 fees are still common in the mutual fund industry. In fact, a recent study by the Investment Company Institute found that 95% of mutual funds charged 12b-1 fees in 2019.

If you are considering investing in a mutual fund, it is important to be aware of the 12b-1 fee. You should also compare the 12b-1 fees of different funds to see which fund has the lowest fee.