SIE (Securities Industry Essentials) Practice Exam

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No-load mutual funds may have lower expense ratios than load mutual funds for which of the following reasons?

No-load funds offer a higher rate of return
No-load funds are not permitted to charge a 12b-1 fee greater than 25 basis points
No-load funds are typically smaller in size
No-load funds are exempt from federal regulations

The correct answer is: No-load funds are not permitted to charge a 12b-1 fee greater than 25 basis points

No-load funds may have lower expense ratios than load mutual funds because they are not permitted to charge a 12b-1 fee greater than 25 basis points. This means that they are limited in the amount they can charge for marketing and distribution expenses, which can contribute significantly to the overall expenses of a mutual fund. Options A, C, and D do not provide an accurate explanation for why no-load funds may have lower expense ratios. Option A is incorrect because the rate of return on a fund is not directly related to its expense ratio. Option C is incorrect because the size of a fund does not determine its expense ratio. Option D is incorrect because federal regulations apply to all mutual funds, regardless of whether or not they have a sales charge.