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Finance Glossary

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12B-1 Fee

Definition:

A 12b-1 fee is a fee tacked on by mutual funds quarterly to pay for the administration, paperwork, mailings that it incurs as a normal part of running its business. The 12b-1 fees were initially provided for as part of the 1940 Act that created the regulations behind the mutual fund business. The belief then was that these marketing fees would make the fund industry grow and under scales of economy, it would let them charge lower fees to customers. With the huge popularity of index funds and ETFs, the mutual fund industry is in gradual decline now - the 12b-1 fees have become an important element in helping the industry "die more slowly" as other vehicles have simply become more popular investing vehicles. See index funds vs. mutual funds.

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