Let’s start with the basics. When someone talks about mutual funds in terms of market cap, what do you interpret? Let me explain! The market cap denotes the size of the company in which someone invests and not the size of the mutual fund.
Small Cap Funds
Small cap funds lie at the lowest end of market capitalization. The small cap companies are usually the companies which are at early stage of development or are start-ups. These companies have smaller client base and revenue. Small cap funds are quite often seen as a platform for making big returns within a short period of time.
The nature of these type of funds is volatile as the investment made in companies that are less sound than large cap companies. This volatility can be both advantageous and disadvantageous for the investors. These funds are a great option for those who are ready to tolerate high risk and are looking for aggressive growth. On the other hand, at the time of instability, the less established companies can go bankrupt and these type of funds can suffer badly.
Mid Cap Funds
These are the funds that lie between small and large cap funds. These funds represent mid sized companies, that are less risky than small cap and relatively riskier than large cap companies. Mid cap funds are a good option for those who are looking for funds without the small cap related risk and with greater return possibility.
An important note!
It is very important to do a good amount of research about the companies before investing in short or mid cap funds.