What Are "12b-1 Fees?"

Another factor to consider when choosing a mutual fund are its 12b-1 fees, which are basically money the fund managers take out to pay for running and marketing the fund.

Vanguard says:

    “Some funds charge a 12b-1 fee to pay the fund’s marketing and distribution costs. This fee, which is incorporated into the expense ratio, can include a sales charge to compensate sales people.”

Feeling looser with its tongue, the Securities And Exchange Commission says:

Distribution [and/or Service] Fees (“12b-1” Fees) — fees paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. “Distribution fees” include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. “Shareholder Service Fees” are fees paid to persons to respond to investor inquiries and provide investors with information about their investments.

It’s important to know the fees involved with a mutual fund, 12b-1 among others, as it can dip into the total profit you might gain (or increase what you might lose).

The SEC again:

Be sure to review carefully the fee tables of any funds you’re considering, including no-load funds. Even small differences in fees can translate into large differences in returns over time. For example, if you invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, then after 20 years you would have roughly $49,725. But if the fund had expenses of only 0.5%, then you would end up with $60,858 — an 18% difference.

With NADS’s free online Mutual Funds Fee calculator, you can compare up to three funds and their various fees based on how much you invest and how long you plan on holding them.

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