Capped funds are just what they sound like...funds with a cap on them. No, these aren't the funds that are balding and want to hide it. It means there's a cap on expenses being charged to the investors holding shares in that fund.
Investment companies charge the people they handle investments for. It's like a participation fee, or the fee the management company collects for offering its expertise to the investor. Picture the investor as the queen asking for a favor from the management company Rumpelstiltskin. This fee setup specifies exactly what the fees will be, and keeps the investment company from collecting a boatload of extra fees and the first-born kid too (unless your kid is in the Terrible Twos and you'd like him to live with Rumpelstiltskin for a bit...totally up to you).
Capping the expenses outlines a fee schedule of sorts, so the investor knows exactly what they are paying and why, and also sets up a process where the company has to seek approval from its management board in order to change the fees. Once it's approved, the investors are notified of the change and have the option to leave the company (and their Stiltskin-like ways).
Related or Semi-related Video
Finance: What is a Closed-End Fund?1 Views
Finance a la shmoop what is a closed-end fund? well it's a type of mutual fund [Man approaches mutual fund desk]
only like a bank at any convenient time it's closed
like its assets are enclosed in its price closed means that the fund itself
doesn't actively trade assets back and forth inside of it on a daily basis like
the most famous closed-end mutual fund in the world is Berkshire Hathaway [Man pushing pram of a baby with Berkshire Hathaway briefcase for a head]
Warren Buffett's you know other child the successful one it owns 40 or 50 key
assets from Geico to train companies to metal machinery firms in Israel to
boatloads of shares of stocks like coca-cola and Gillette and Wells Fargo
all of those assets are wrapped up in a tidy BRK bow and the stock market values [Stock market values appear]
ticker BRK daily by trading it back and forth among investors so yes the assets
inside of the fund do change but in an analogous mutual fund that is open the
value placed on the shares is at what is called net asset value, that value is
calculated by just adding up the 843 stocks at the mutual fund owns or however
many the number is and then just calculating a value based on the number [Calculation appears]
of share units comprising that open end mutual fund the closed-end fund has no
changes that way it's just investors valuing the whole bucket of investments
in one closed number now if you'll excuse us we have to get back to [Baby crying in a crib with Berkshire Hathaway briefcase for head]
babysitting for Warren Buffett isn't she just an angel
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