12b-1 fees are named for the 1980 Securities and Exchange regulation that created them. They are an annual marketing fee charged by some mutual funds to existing shareholders to advertise the fund and to pay brokers who sell the fund. Deducted from a mutual fund's total assets, 12b-1 fees can range from 0.1% to 1.00%, and every fund shareholder pays a prorated amount.
It is important to look at all fees when selecting a mutual fund. All things being equal (e.g., fund performance), low-cost mutual funds will net you higher returns than high-cost funds. While 12b-1 fees are legal, they clearly reduce the return that an investor receives and add to a mutual fund's expense ratio (the percentage of fund assets spent on fund management and other expenses).
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