 Personal Finance PowerPoint Presentation, 12B1 Fund. Prepare to get financially fit by practicing personal finance. Most of this information comes from Investopedia 12B1 Fund, which you can find online. Take a look at the references, resources, continue your research from there. This by Alexandra Twin updated June 26, 2022. In prior presentations, we've been taking a look at investment goals, strategies, tools, keeping in mind the two major categories of investments, that being the fixed income, typically the bonds, the equities, typically the common stock. Also keeping in mind we might be using other tools such as mutual funds, ETFs, so that we can diversify possibly with less investment to do so, as opposed to investing in individual stocks and individual bonds. Keeping that in mind, we're asking, what is a 12B1 Fund? A 12B1 Fund is a mutual fund that charges its holders a 12B1 fee. Remember that a mutual fund is going to be that kind of fund, so that if we invest in, say, a mutual fund, we're pooling our money together with other individual investors, so that a fund manager can then take that money and put it into investments in accordance with the rules of the fund, which could be broad or more restrictive, that allowing us to diversify more, even though we can do so in a fund, making it kind of easier for us to invest and possibly diversify with less investment in the fund. We're now categorizing these funds, and we have different ways that we can categorize the funds. Remember, we could say, well, we're investing in a targeted fund possibly, we can be investing in, and we'll talk more about these later, but we can say we're investing in an index fund or a managed fund or something like that. We're kind of looking at it now in terms of the category by the fees that are being put in place, those being the 12B1 fee. So a 12B1 fee pays for a mutual fund's distribution and marketing costs. It is often used as a commission to brokers for selling the fund. 12B1 funds take a portion of investment assets held and use them to pay expensive fees and distribution costs. So these costs are included in the fund's expense ratio and are described in the prospectus. So the prospectus is something that's going to give you some details on this type of activity. The 12B1 fees are sometimes called level load. So another term for the 12B1 would be level load. So the understanding 12B1 fund, the name 12B1 comes from the Investment Company Act of 1940s Rule 12B1, which allows fund companies to act as distributors of their own shares. Rule 12B1 further states that a mutual fund's own assets can be used to pay distribution charges. Distribution fees include fees paid for marketing and selling fund shares, such as compensating brokers and others who sell fund shares and paying for advertising the printing and mailing of prospectuses to new investors and the printing and mailing of sales literature. I love how they call it literatures. The sales literature. It's like Homer, but like a sales literature. So the SEC, that's going to be our regulatory body on the Fed, does not limit the size of 12B1 fees that funds may pay, but under the FINRA rules, 12B1 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. So often we're thinking about this on the basis of the net assets, which I believe we've talked about in the past or we'll talk about in a future presentation. So remember that when you're thinking about the fund, you're investing in the fund, you're pooling money in, they're going to be buying assets within the fund. The average net assets would generally be the assets of the fund, the value of the investments in the fund minus the liabilities would be the net asset value. And then you're going to use that oftentimes to help calculate your expenses or your fees. So the 12B1 fees, some 12B1 plans also authorize and include, quote, shareholder service fees, in quote, which are fees paid to persons to respond to investor inquiries and provide investors with information about their investments. A fund may pay shareholder service fees without adopting a 12B1 plan. If shareholder service fees are part of a fund's 12B1 plan, these fees will be included in this category of the fee table. If shareholder service fees are paid outside a 12B1 plan, then they will be included in the quote, other expenses in quote category discussed below. FINRA imposes an annual 0.25% cap on shareholder service fees, regardless of whether these fees are authorized as part of a 12B1 plan. Originally, the rule was intended to pay advertising and marketing expenses. Today, however, a very small percentage of the fee tends to go towards these costs. Special consideration, the 12B1 funds have fallen out of favor in recent years. The growth in expense-traded funds, those are the ETS options, and the subsequent growth of low-fee mutual fund options has given consumers a wide range of options. So notably, 12B1 fees are considered a deadweight in experts believe consumers who shop around can find comparable funds to ones charging 12B1 fees. So you want to take the fees into consideration as you're looking around.