3. 12b-1 Fees

Some mutual funds charge 12b-1 fees, which are fees for distribution, marketing, and operational expenses. While these costs are usually included in a mutual fund’s expense ratio, they tend to be hidden costs that most investors overlook.

12b-1 fees were initially meant to help investors yield lower expenses and higher assets. However, not everyone thinks like this, as some people argue that 12b-1 fees can reduce your returns instead of boosting your fund’s performance.

In 2016, the Securities and Exchange Commission instituted proceedings against First Eagle Investment Management, an independent asset management company that reportedly used investors’ mutual fund assets to cover “marketing and distribution costs.”