Capped Investment Fund Definition
A Capped Fund is an investment fund that has an annual limit on the operating expenses that can be charged to shareholders. The limit is expressed as the ratio of total operating expenses divided by the average net asset fund. The investment advisor fund will disclose an account of the restrictions in the prospectus.
A Little More on Capped Funds
The Cost limitation ratio of a mutual funds provides investors with a fee ceiling. Some Funds may choose to limit the cost ratio by specifying the amount or the charge limit. This limited fee level gives investors an upper limit on the fees. This is the highest percentage of total annual operating costs that the Fund can charge its shareholders each year.
The fund company provides detailed information on the amount of the fee cap in its prospectus document. Typically, the fee level is set within the specified period. Generally, the fund management company may, at its discretion, increase, change or revoke the fee cap but must provide documentation and disclosure.
Changes to the cap affect the annual return of the fund. Any increase in the upper limit can lead to lower yields, while a decrease can improve performance.
Investment companies may also decide to limit the fund holdings. For Capped Funds and Indices, the highest investment level applies to each component. This can lead to wider diversification and maintain a single shareholding that does not unduly impact the performance of the Fund.
There are some cap and cap indices in the investment market, including:
- S&P/TSX 60 Capped
- S&P/TSX Capped Composite
- S&P/TSX Capped Energy
- S&P Russia BMI Capped
- S&P Italy Large and Mid-Cap Capped
- S&P All Africa Capped
- DJCI Gas & Oil Capped Component
- S&P GSCI Cap Component