12b-1: Understanding Mutual Fund Fees

As with any for-profit business enterprise, the mutual fund industry charges fees for the services it offers. Actively managed fund services consist of managing a pool of commingled assets with an investment strategy like outperforming an index over time.

Mutual funds have historically charged consumers 12b-1 fees for marketing and promoting their services to prospective investors.

What Are 12b-1 Fees?

According to the Securities and Exchange Commission (SEC), 12b-1, "fees are deducted from a mutual fund to compensate securities professionals for sales efforts and services provided to the fund's investors."

Charging 12b-1 fees has grown controversial, and in 2025, mutual funds are commonplace,e which makes the original motivation for creating the fee much less meaningful. Funds are also much larger, with some managing over a trillion dollars in assets.

12b-1s also have a shareholder service fee, with an annual cap of 25 basis points or 0.25% of all the assets managed in a fund. With billions under management, it is difficult to see the need to charge investors to market the fund to other potential investors. Estimates of 12b-1 fees were at $10 billion annually in 2020. As of 2023, 92% of investments or sales of long-term mutual funds were funneled to no-load funds without 12b-1 fees, compared with 46% in 2000.

Expense Ratios

The 12b-1 fee is a component of a mutual fund's total expense ratio. Websites, including Morningstar and Yahoo! Finance, generally list the total expense ratio by fund. It is also found on a mutual fund prospectus. The prospectus must list specific fees by each mutual fund class offered. Generally, the fund's annual operating expenses will be broken down into components. The largest fee is usually the management fee, which is what the portfolio managers charge to run the fund.

The distribution fee, or 12b-1 fee, will also be listed. Other fees and expenses may include sales charges such as front-end and back-end sales loads that investors incur when they buy or sell a fund. There may also be other operating expenses, such as account administration fees, recordkeeping fees, and networking fees to wholesalers and other financial intermediaries that also help to sell the fund.

The Bottom Line

Historically, 12b-1 fees helped firms market and sell mutual funds. These fees are part of a funds expense ratio. Since 1996, mutual fund expense ratios have dropped by 60% as investors have chosen no-load funds.