SEC Quietly OKs Limits on Mutual Fund Fees : Securities: The new rule puts a ceiling on total sales charges and 12b-1 fees. It won’t go into effect until July, 1993.

In a bid to better control the costs of investing in mutual funds, federal regulators have approved a new ceiling on the fees that can be charged to investors.

The new rule--first proposed in 1990 by the National Assn. of Securities Dealers--caps the combined amount of sales charges and 12b-1 fees, which mutual funds charge investors to offset marketing expenses.

The rule adopted by NASD, a self-regulatory body for the securities industry, was approved quietly by the Securities and Exchange Commission last week. SEC officials confirmed their action Tuesday.

The guidelines, which take effect in July, 1993, effectively place a limit on annual marketing charges investors must absorb when they put their money in many funds.

The rules--expected to affect hundreds of billions of dollars of mutual fund investments--also are meant to give investors a better idea of what charges they will face.

For example, funds that charge more than 0.25% of their net assets in 12b-1 fees no longer will be able to advertise themselves as “no load.”

“It will reduce charges, reduce funds’ expenses and improve performance to the extent that charges are reduced,” said Robert Butler, president of Pioneer Funds Distributor, the marketing arm of Boston-based Pioneer Funds.

Marianne Smythe, director of the SEC’s investment management division, said the new rules are “an improvement over the existing situation.”

“It rationalizes, to a large degree, the labeling of funds,” she added. “But there is no substitute for clear disclosure of fees and price competition to assure the lowering of fees in this industry.”

Until now, funds had faced an 8.5% limit only on the one-time sales charge, or “load,” they can levy directly on investors when an investor buys into a fund.

That limit has been in place since the early 1970s.

But since 1980, funds have been able to impose annual charges through the unregulated 12b-1 fee, giving them a way to exceed the 8.5% limit.

The fee, named after an SEC regulation, is the marketing charge a fund effectively assesses yearly on its investors by deducting costs from earnings.

The fee typically covers expenses such as advertising but has been used by many fund companies as another way to compensate brokers who sell the funds.

The 12b-1 fee is believed to be about 1% at most stock funds, but as high as 1.25% at some. Bond funds typically have a lower fee.

Under the new rule, a fund will not be able to pay its brokers a total of more than 7.25% of its gross sales.

On an annual basis, the fund will not be able to pay brokers more than 1% of average net assets. But three-quarters of that amount will be limited to certain sales charges.

The new guidelines will affect many investors. Of the $1.5 trillion in total mutual fund assets, only about a third are free of both load charges and 12b-1 fees.