No Load Funds

• A 12b-1 fee can vary in the maximum allowable amount, depending on whether the fund is a no load fund or a loaded fund
• A 12b-1 marketing fee is disclosed in the mutual fund expense ratio
• The funds prospectus should detail the percentage of the 12b-1 fee charged by the mutual fund

If you are like many investors, mutual fund fees and broker commission fees may seem confusing a first glance. Fees and commissions can include load fees on either the front end or the back end, or both, if you do not choose no load funds. There is also a fee called a 12b 1 fee, which should be disclosed in the funds prospect and be reflected in the mutual fund expense ratio as well. One fee that may not be well understood is the 12b-1 marketing fee, and this fee can be included in many different funds, some of which do carry load fees as well. Comparing these fees for both load and no load funds can help you determine which type of mutual fund is right for you.

A 12b-1 fee is considered a distribution and marketing expense fee, and is a necessary operational expense. This is why this fee is included in the mutual fund expense ratio and disclosed in the funds prospectus. Even no load funds can charge this fee, because it is not a load fee or commission but is instead a legitimate operating expense. This fee is an annual one, and the maximum amount of this fee can only be one percent of the net assets of the fund. Normal amounts for this fee can range from one fourth of one percent all the way up to the maximum one percent allowable with load funds. No load funds do not charge a 12b-1 fee which is more than one fourth of one percent of their net assets, unlike the one percent max of loaded funds. This means that if a fund is supposed to be one of the no load funds, but the marketing fee is more than one fourth of one percent,it is not actually a typical no load fund but is instead charging higher fees in other areas.

12b-1 fees are regulated by the Securities and Exchange Commission, and are covered in section 12b-1 of the Investment Company Act of 1940. These fees are intended to pay for either all or some of the expenses incurred by the fund for distributing shares of the fund to the public, and to pay for advertising expenses for the fund. Sales incentives and any sales literature distributed can also be paid for using these fees. There is a big difference in these fees between no load funds and loaded funds, and that is in the maximum amount allowed to be charged. Loaded funds may carry 12b-1 fees up which are up to one percent of the net fund assets, while no load funds usually have a fee which is only the fourth of one percent at the maximum. This means no load funds only charge one fourth of what loaded funds may charge for this marketing fee. If you are trying to find the lowest marketing fees available, loaded funds are not the way to go because they can charge up to four times what no load funds do just in this one single charge.

The 12b-1 marketing fees are charged yearly, and are normally outlined in any sales literature and presentation shown as well as in the mutual fund expense ratio. These fees were first created to help market the mutual fund, which would benefit the investors because more investments would be made to the fund by new investors, allowing it to grow and become a better investment value. With loaded funds, this fee has been commonly used in more recent years to pay sales incentives and commissions though, and this is funds that do not go back into the mutual fund but go instead to managers. No load funds charge 12b-1 marketing fees that are used to benefit the mutual fund, in the form of advertising and distributing the fund to the public to draw in more investors and strengthen the mutual fund.