What does 12b-1 mean?

A 12b-1 fee is an annual marketing or distribution fee on a mutual fund. The 12b-1 fee is considered to be an operational expense and, as such, is included in a fund’s expense ratio. It is generally between 0.25% and 0.75% (the maximum allowed) of a fund’s net assets.

Who gets 12b-1 fee?

12b-1 fees are paid to the salespeople who distribute mutual funds and are paid from the fund’s assets.

What is 12b-1 maximum?

Understanding 12b-1 Funds 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.

Do all funds have 12b-1 fees?

In fact, 30% of mutual funds don’t charge 12b-1 fees, since their managers find them unnecessary or would rather protect the financial interests of their existing investors.

What exactly are 12b-1 fees anyway?

So-called “12b-1 fees” are fees paid out of mutual fund or ETF assets to cover the costs of distribution – marketing and selling mutual fund shares – and sometimes to cover the costs of providing shareholder services. 12b-1 fees get their name from the SEC rule that authorizes a fund to charge them.

What are 12b rules?

Form 12b is an income tax form that needs to be furnished according to Rule 26A by an individual joining a new organisation or company in the middle of the year. The main purpose of the form is to furnish details of the income earned by the individual from the previous employer.

Why is it called a 12b-1 fee?

What is a good expense ratio?

A good expense ratio, from the investor’s viewpoint, is around 0.5% to 0.75% for an actively managed portfolio. An expense ratio greater than 1.5% is considered high.

Does expense ratio include all fees?

It should be noted that a fund’s expense ratio represents your cost of owning the fund—not purchasing or redeeming the fund (sales loads). Any initial or deferred sales charges, transaction fees, or brokerage charges are not included in the expense ratio.

Are 12b-1 fees tax deductible?

The short answer to this question is “No, you cannot deduct fund expense ratios on your tax return.” However, while these expenses aren’t directly deductible, the reasoning behind this makes sense when you understand the Internal Revenue Service’s definition of an investment expense.

What are the differences between an ETF and a mutual fund?

ETFs actively trade throughout the trading day while mutual fund trades close at the end of the trading day. Mutual funds are actively managed, and ETFs are passively managed investment options.

How much expense ratio is too much?