Why Mid Cap Funds are Advantageous
The market capitalization of a fund helps an investor know the size of the company he could potentially invest in. These cap sizes tend to vary over time. They also vary depending on brokerage houses. Generally, a small cap fund falls into the range of less than one billion dollars, a mid cap fund falls between one billion and eight billion dollars and the large cap funds are all above eight billion dollars. Large fund tend to have ownership level restrictions, and are best for long term investors who aren’t looking for much risk. Small cap funds though, invest in companies that may not be all that stable – as they are still likely in the early stages of their business and could possible collapse. This is why small caps funds are highly volatile to invest in, though they can give large returns. You need to what you’re doing to get the best here.
A mid cap fund falls in-between these two funds, the companies in this range are slightly more stable than small cap funds. It does not always end up moving with the market and its ups and downs – so there happens to be more stability here. This means that you need to fear a little less about their volatility. It gives you better returns than other as well – and it’s not quite so long term. So you get better returns than the large caps and increased stability than with the small caps when you pick a mid cap fund. Over a period of time a small and mid cap funds are likely to outperform a large cap funds. This is because a small and mid cap fund are more likely to focus on growth, to become a large conglomerate. They are more efficient in their business as they are more compact.
But don’t rely on every mid cap fund which is doing well – there are always exceptions to the rule. Look at your own finances and understand where you can afford to use your capital. If you are more interested in long run investments, perhaps it isn’t for you. But if you want a higher return with less volatility you could consider investing in it. Remember to do your homework, before you actually invest in mutual funds. You need to know where your money is going and what are the risks involved in a particular investment when you choose to invest. The fund that is invested in midsized companies can achieve a higher return. So, before investing in a Fund research the market, analyze it what helps you to get the return you desire.