Mutual Fund Hidden Fees

The 12b-1 fee is also related to sales and marketing costs. Named for the SEC rule that authorizes them, 12b-1 fees allow mutual fund companies to charge ongoing fees on an annual basis to support various expenses, including sales commissions to advisors, advertising, promotional materials, and other costs of marketing and distributing funds. These fees generally range from 0.25% to 1% each year.

Unlike sales loads, which are charged only once at the purchase or the sale of shares, 12b-1 fees are taken from your account continually. So while a 1% 12b-1 fee may seem a lot less worrisome than a sales load of 8.5%, you may well end up paying more in 12b-1 fees if you hold mutual fund shares over the long term. Furthermore, because 12b-1 fees are generally taken from the income distributions your mutual fund pays to you, you may well not even notice how much you're paying for the fee. While you can find a description of general fund fees and expenses in every fund prospectus, you won't get an itemized bill from your mutual fund explaining exactly how much money you paid for each type of fee. Because they are difficult to calculate and easily concealed, 12b-1 fees are sometimes referred to as hidden loads.

From Motley Fool Dan Caplinger