Mutual Fund 12b-1 and Service Fees
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Mutual Fund 12b-1 and Service Fees
The term "12b-1" refers to the Securities and Exchange Commission rule that allows funds to use shareholder money for certain expenses. In some no-load funds, 12b-1 fees may cover sales expenses. You can tell when a mutual fund charges this expense by looking it up in the financial page listings. There it will have a "p" right after its name.
Things To Know
- 12b-1 fees cover various expenses that are not directly sales-related.
- If a fund charges 12b-1 fees, its allowable sales load will be limited.
Why do funds charge 12b-1 fees?
Mutual fund companies may assess 12b-1 fees to cover expenses not involved in the direct selling of shares such as for:
- Advertising
- Printing
- Compensation for brokers who sell shares
- Sales literature and its distribution
- Toll-free telephone lines
Limits on sales loads
Funds that charge both 12b-1 fees and other service fees may charge a legal maximum sales load of only 6.25 percent. Those that charge 12b-1 fees but no other service fees may charge a top sales load of 7.25 percent. Finally, funds that do not impose 12b-1 fees or other service fees may charge sales loads of up to 8.5 percent.
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization for the securities industry. It sets a limit of 1 percent per year on 12b-1 fees. The actual amount companies charge varies, from nothing up to the maximum.