12B-1 Fund

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Definition of '12B-1 Fund'

A 12b-1 fee is a type of fee that is charged by mutual funds and other investment companies to cover the costs of marketing and distribution. These fees are typically paid by the fund's shareholders and can range from 0.25% to 1% of the fund's assets.

The 12b-1 fee was created in 1980 by the Securities and Exchange Commission (SEC) in an effort to regulate the marketing and distribution of mutual funds. The fee is designed to ensure that investors are aware of the costs associated with investing in a mutual fund and to prevent fund companies from using excessive marketing expenses to boost their sales.

The 12b-1 fee is charged on a quarterly basis and is based on the average daily net assets of the fund. The fee is used to cover a variety of costs, including marketing, advertising, sales commissions, and administrative expenses.

There are a number of potential benefits to investing in a mutual fund that charges a 12b-1 fee. These funds may have higher levels of sales and marketing activity, which can lead to increased awareness and demand for the fund. This can lead to higher prices for the fund's shares, which can benefit existing shareholders.

However, there are also a number of potential drawbacks to investing in a mutual fund that charges a 12b-1 fee. These funds may have higher expense ratios than funds that do not charge a 12b-1 fee. This means that investors may pay more in fees over time, which can reduce their returns.

Overall, the decision of whether or not to invest in a mutual fund that charges a 12b-1 fee is a personal one. Investors should carefully consider the pros and cons of these funds before making a decision.

In addition to the 12b-1 fee, mutual funds may also charge other fees, such as an annual management fee and a redemption fee. Investors should be aware of all of the fees associated with a mutual fund before investing.

The 12b-1 fee is a complex topic with a lot of potential implications for investors. If you are considering investing in a mutual fund, it is important to understand the 12b-1 fee and how it will affect your investment.

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