The 12b-1 fee is an annual fee that mutual funds charge to cover marketing, distribution, and sometimes shareholder services. The name “12b-1” comes from the Securities and Exchange Commission (SEC) rule that authorizes these fees—Rule 12b-1 under the Investment Company Act of 1940.

Here are key points about the 12b-1 fee:

1. **Purpose:** The primary purpose of the 12b-1 fee is to help mutual funds cover the costs associated with promoting and selling their shares. This includes expenses related to advertising, distributing marketing materials, and compensating intermediaries, such as financial advisors.

2. **Components:** The 12b-1 fee can be broken down into different components. Some funds use it solely for marketing and distribution, while others may allocate a portion of the fee to cover shareholder services, such as maintaining customer service lines or providing educational materials.

3. **Limits:** The SEC imposes limits on the 12b-1 fees that mutual funds can charge. These limits are meant to prevent excessive fees and ensure that investors are informed about the costs associated with owning a particular fund.

4. **Disclosure:** Mutual funds are required to disclose the 12b-1 fees, along with other fees and expenses, in their prospectus. This information is crucial for investors to understand the total cost of owning the fund.

5. **Effect on Returns:** The 12b-1 fee, like any other fee, affects the overall return that investors receive. Higher fees can reduce the net return on an investment.

It’s important for investors to be aware of the 12b-1 fees associated with a mutual fund and to consider the impact of these fees on their investment returns. When evaluating mutual funds, investors should carefully review the fund’s prospectus to understand the fee structure and ensure that it aligns with their investment goals and preferences.