Mid cap funds are mutual funds or similar investment options that get an investor into multiple mid cap stocks or equities. Mid cap stocks are a specific kind of stock that represents a company within a certain range of market capitalization. Mid cap funds are a great way to do what’s called “growth investing,” where the investor is betting that good companies will “break out” into larger markets and attain higher earnings over time.
To understand market capitalization, take the current price of a company’s stock and multiply it by the total number of shares on the market. That is the total market capitalization of the company. Mid cap stocks are the stocks of companies with market capitalization between 2 and 10 billion U.S. dollars. For example, if a certain company has a stock price of 5 dollars, and a billion shares on the market, the market capitalization or “market cap” for that company is 5 billion dollars. That makes the company’s stock a “mid cap stock.”
Mid cap funds represent a diversified investment in several different mid cap stocks. The diversification that mutual funds offer is very important to some investors. The theory is that by holding several stocks, the investor will be exposed to less of a loss if one of those stocks decreases in value. That also means the potential for quick gain is limited in the same way, but some investors believe mid cap mutual funds to be a safer investment than a single mid cap stock.
In terms of risk, lots of investors see mid cap funds as less risky than small cap funds, where smaller companies have an overall higher rate of failure or bankruptcy. Many also see mid cap funds as more risky than those of “blue chip” companies with higher market capitalization, although this is not always the case. Pursuing mid cap funds and stocks represent a philosophy about trading, where the investor is looking at firms that are already somewhat established, but also have some room for growth and expansion.
In addition to mid cap mutual funds, other opportunities include mid cap exchange traded funds or ETFs. Mid cap ETFs have some advantages over mid cap mutual funds including easy online tracking and brokerage access. Mid cap ETFs can also often be traded throughout the day.
Knowing about market capitalization for stocks will help investors make more informed decisions. Mid cap funds can help expand a portfolio in a smarter, more diversified way. Different mid cap options can help investors profit from more than one of these potentially lucrative stocks.