Why do no-load mutual funds have lower expense ratios compared to mutual funds with a sales load?

No-load mutual funds are designed to be more cost-effective for investors primarily because they do not incur commissions that brokers would typically receive for selling these funds. Since no-load funds don’t have a sales load, this provides a direct financial benefit to the investor, reflected in lower expense ratios.

Expense ratios include various costs associated with managing the fund, such as administrative expenses, management fees, and other operational costs. In the case of load funds, a portion of the fees goes toward compensating the brokers who sell the fund to investors, which increases the overall cost of investing in that fund.

By eliminating the need to compensate brokers with sales commissions, no-load funds can pass those savings on to investors in the form of lower expense ratios. This makes no-load mutual funds an attractive option for cost-conscious investors looking to maximize their returns by minimizing fees.

While the other options mention aspects like advisory fees and operational costs, they do not define the core reason for the lower expense ratios specifically for no-load funds compared to those with a sales load. Focused savings from avoiding broker commissions is the primary driver of the lower expense ratios in no-load mutual funds.