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Finance Glossary

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12B-1 Fee

Definition:

If you have any mutual funds, the 12b-1 fee is what you pay every quarter (that's four times a year, mathletes) to pay for the administration, paperwork, and all the other stuff it takes to run a mutual fund.

The 12b-1 fees were first created as part of the 1940 Act, which helped set up the rules for the mutual fund business. Back then, people thought that the fees would make the mutual fund industry grow. It didn't quite work out that way. People started investing in index funds and ETFs, so the mutual fund industry is now heading the way of CDs and flip phones. Instead, 12b-1 fees have become a way for the mutual fund industry to "die more slowly."

For more on the mutual fund and index fund show-down, see index funds vs. mutual funds.