Abstract
This paper presents empirical evidence that bond mutual funds which have adopted the use of 12b-1 fees have not achieved the goal of lowering expense ratios. Using a model specific to bond funds, as opposed to generic models used in previous studies on equity funds, the analysis confirms that the 12b-1 fee is an additional cost borne by shareholders of the fund without any additional benefit. However, this cost as a percent of the net asset value of the fund has decreased from 1991 through 1994. This reduction coincides with the submission of a proposed rule change by the National Association of Security Dealers concerning maximum sales charges imposed by mutual funds on December 28, 1990 and the implementation of limits on 12b-1 fees which became effective in July of 1993.
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McLeod, R.W., Malhotra, D.K. The effect of rule 12b-1 on bond fund expense ratios. J Econ Finan 20, 65–78 (1996). https://doi.org/10.1007/BF02920499
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DOI: https://doi.org/10.1007/BF02920499