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One notable component of the expense ratio of U.S. funds is the "12b-1 fee", which represents expenses used for advertising and promotion of the fund. 12b-1 fees are paid by the fund out of mutual fund assets and are generally limited to a maximum of 1.00% per year (.75% distribution and .25% shareholder servicing) under FINRA Rules. [7]
The commission that the agent receives is usually a percentage of this figure, although some firms like Merrill Lynch use figures called Production Credits, usually smaller than GDC, to determine payouts and retain more revenue. For example, a mutual fund with a 5.75% sales charge is sold to someone who invests $10,000.
Many broker-dealers also serve primarily as distributors for mutual fund shares. These broker-dealers may be compensated in numerous ways and, like all broker-dealers, are subject to compliance with requirements of the Securities and Exchange Commission and one or more self-regulatory organizations, such as the Financial Industry Regulatory ...
When these expenses are charged separately, distribution charges pay for marketing, distribution of the fund's shares, and services to investors. There are three types of distribution charges. Front-end load or sales charge. A front-end load or sales charge is a commission paid to a broker by a mutual fund when shares are purchased. It is ...
The act also places some restrictions on certain mutual fund activities such as short selling shares. However, the act did not create provisions for the U.S. Securities and Exchange Commission (SEC) to make specific judgments about or even supervise [clarification needed] an investment company's actual investment decisions. The act requires ...
In October 2023, Zerodha launched Zerodha Fund House, an asset management company, in partnership with Smallcase. It focused on index funds and had only direct plans which paid no commissions to distributors. [24] [25] In March 2024, the fund house had an AUM of ₹ 10 billion (US$120 million). [26]