Mutual Fund Distribution Fee

B

The 12b-1 plan allows a fund to deduct as much as 1.25 percent of average net assets per year to cover distribution costs such as advertising, brokers' commissions and marketing expenses.

The type of fee charged by a fund to cover distribution costs is known as the 12b-1 fee.

The 12b-1 fee is a recurring fee charged by mutual funds and other investment vehicles to cover the costs associated with marketing, distribution, and certain shareholder services. It is named after the section of the U.S. Investment Company Act of 1940 that authorizes such fees.

The purpose of the 12b-1 fee is to compensate intermediaries, such as financial advisors and brokers, for selling and promoting the fund to investors. These fees are typically included in a fund's expense ratio, which reflects the total costs incurred by the fund.

The 12b-1 fee is expressed as an annual percentage of the fund's net assets. It is deducted from the fund's assets before calculating the net asset value (NAV) per share, meaning that the fee is borne by the fund's shareholders. This fee is ongoing and can be charged for as long as the investor holds shares in the fund.

The 12b-1 fee covers a variety of expenses, including payments to financial intermediaries for marketing materials, advertising, sales support, and other activities aimed at promoting the fund. It may also cover administrative services provided to shareholders, such as maintaining account records, providing statements, and processing transactions.

It's important to note that 12b-1 fees can vary among different funds. Some funds may charge higher 12b-1 fees to compensate intermediaries more generously, while others may have lower or no 12b-1 fees, known as "no-load" funds.

To recap, the correct answer to the question is B. 12b-1 fee, which is a type of fee charged by a fund to cover distribution costs and compensate intermediaries for selling and promoting the fund to investors.