what is a 12b 1 fund 
a 12b 1 fund is a mutual fund that charges its holders a 12b 1 fee a 12b 1 fee pays for a mutual fund s distribution and marketing costs it is often used as a commission to brokers for selling the fund 12b 1 funds take a portion of investment assets held and use them to pay expensive fees and distribution costs these costs are included in the fund s expense ratio and are described in the prospectus 12b 1 fees are sometimes called a level load understanding 12b 1 fundsthe name 12b 1 comes from the investment company act of 1940 s rule 12b 1 which allows fund companies to act as distributors of their own shares rule 12b 1 further states that a mutual fund s own assets can be used to pay distribution charges distribution fees include fees paid for marketing and selling fund shares such as compensating brokers and others who sell fund shares and paying for advertising the printing and mailing of prospectuses to new investors and the printing and mailing of sales literature the sec does not limit the size of 12b 1 fees that funds may pay but under finra rules 12b 1 fees that are used to pay marketing and distribution expenses as opposed to shareholder service expenses cannot exceed 0 75 of a fund s average net assets per year 12b 1 feessome 12b 1 plans also authorize and include shareholder service fees which are fees paid to persons to respond to investor inquiries and provide investors with information about their investments a fund may pay shareholder service fees without adopting a 12b 1 plan if shareholder service fees are part of a fund s 12b 1 plan these fees will be included in this category of the fee table if shareholder service fees are paid outside a 12b 1 plan then they will be included in the other expenses category discussed below finra imposes an annual 0 25 cap on shareholder service fees regardless of whether these fees are authorized as part of a 12b 1 plan originally the rule was intended to pay advertising and marketing expenses today however a very small percentage of the fee tends to go toward these costs 0 75 is the current maximum amount of a fund s net assets that an investor can be charged as a 12b 1 fee special considerations12b 1 funds have fallen out of favor in recent years the growth in exchange traded fund etf options and the subsequent growth of low fee mutual fund options has given consumers a wide range of option notably 12b 1 fees are considered a dead weight and experts believe consumers who shop around can find comparable funds to ones charging 12b 1 fees 