Question

A mutual fund is offered with no up-front sales charge and no contingent deferred sales charge. It charges 50 basis points of 12b-1 fees annually. The fund publishes an advertisement stating that: "This is a no-load fund." Which statement is TRUE?A. The statement is true as presented
B. This statement is misleading because no-load mutual funds cannot charge 12b-1 fees
C. This statement is misleading because a no-load fund cannot charge more than 25 basis points of 12b-1 fees
D. This statement is misleading because mutual funds are not permitted to advertise themselves as no-load funds

Answer 1

Answer:

The correct statement is C. This statement is misleading because a no-load fund cannot charge more than 25 basis points of 12b-1 fees

Explanation:

THIS STATEMENT IS MISLEADING BECAUSE A NO-LOAD FUND CANNOT CHARGE MORE THAN 25 BASIS POINTS OF 12B-1 FEES.

A mutual fund is not permitted to advertise itself as a "no-load" fund if it charges 12b-1 fees of more than .25% (25 basis points) annually. 12b-1 fees are charges against net asset value that pay for the cost of soliciting new investment to the fund, and they can be used to compensate salespersons that sell the fund's shares.