Final answer:
12b-1 fees are fees charged by a mutual fund to cover distribution and marketing expenses. They are included in a fund's expense ratio and can impact overall returns.
Step-by-step explanation:
12b-1 fees are fees charged by a mutual fund to cover distribution and marketing expenses. These fees are named after the section of the Investment Company Act of 1940 that allows mutual funds to charge them.
The fees are typically a percentage of the fund's assets and are used to pay for activities such as advertising, sales commissions, and shareholder servicing.
For example, if a mutual fund has $100 million in assets and a 12b-1 fee of 1%, it would collect $1 million as 12b-1 fees. These fees are included in the fund's expense ratio, which represents the total cost to investors for owning the fund.
It is important for investors to understand 12b-1 fees because they can have a significant impact on the overall returns of a mutual fund.