Products & Their RisksQuestion 110 of 398
A 12b-1 fee charged by a mutual fund is used to cover:
a.Ongoing distribution and marketing costs, deducted annually from fund assets
b.A one-time front-end sales charge at purchase
c.The custodian's safekeeping of securities only
d.Federal taxes owed by the fund
Explanation
A 12b-1 fee is an annual charge, deducted from fund assets, that pays for distribution and marketing expenses such as advertising and compensation to selling brokers. Because it is an ongoing asset-based fee, it raises a fund's expense ratio and reduces investor returns over time; a 'no-load' fund's 12b-1 fee is limited to 0.25%.
Law Reference: Investment Company Act of 1940Practice all 398 questions free — no signup required.
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