Do Investors Benefit from 12b-1 Fees?

Under rule 12b-1, mutual funds are allowed to charge a fee of up to 100 basis points per year to cover marketing and distribution costs. Under NASD rules, a fund may charge a 12b-1 fee of up to 25 basis points per year and still advertise itself as a no load fund. This fee is used to make the funds...

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Bibliographic Details
Published inAmerican journal of business Vol. 22; no. 1; pp. 21 - 30
Main Authors Dowen, Richard J., Mann, Thomas
Format Journal Article
LanguageEnglish
Published Muncie Emerald Group Publishing Limited 22.04.2007
Subjects
Distribution costs
Fees & charges
Hypotheses
Investment advisors
Marketing
Mutual funds
Portfolio management
Ratios
Regression analysis
Scandals
Stockholders
Studies
12b-1 fee
NASD rules
Investors
Mutual funds
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Summary:Under rule 12b-1, mutual funds are allowed to charge a fee of up to 100 basis points per year to cover marketing and distribution costs. Under NASD rules, a fund may charge a 12b-1 fee of up to 25 basis points per year and still advertise itself as a no load fund. This fee is used to make the funds charging it more visible to the investing public. The question explored here is very simple; are the investors in no load funds well served by investing in those funds that charge this fee? It is shown here that the no load funds charging 12b-1 fees do not perform as well as the funds that do not charge the fee but that they experience greater cash inflows.
ISSN:1935-5181
1935-519X
1935-5181
DOI:10.1108/19355181200700002