A 12B-1 fee is an ongoing fee charged to mutual fund investors to cover the marketing, distribution, and administrative expenses of the fund. These fees are typically assessed as a percentage of the fund’s average assets under management (AUM) and are used to compensate intermediaries, such as financial advisors or brokers, for selling and servicing the fund. The name “12B-1” refers to the section of the Investment Company Act of 1940 that authorizes these fees.
12B-1 fees are part of the total expense ratio (TER) of a mutual fund, and they can vary from one fund to another. They are often broken down into two categories: distribution fees (for marketing and selling the fund) and service fees (for ongoing customer support). While these fees can make it easier for investors to access and invest in mutual funds, they also impact the overall cost of ownership and potential returns for investors.