Friday, December 24, 2010

12B-1 Fee

The so-called 12B-1 fee was established in US regulation from the Investment Company Act 1940. The fee ranges between 0.25% and a maximum of 1.00% of a fund's net assets. The fee is designed to be used for paying the fund's marketing, promotion and distribution expenses. The 12B-1 fee gets incorporated into the total expense ratio. The argument is that as a result of marketing and promotion a fund will grow larger and through potential economies of scale be able to operate a more efficient total expense ratio, in practice the results are mixed. Investors need to be vigilant of fees because of the impact on net performance and long term wealth growth.
 
Synonyms: 12b-1, Marketing fee, Marketing expenses, Fund expenses, Expense ratio

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