Mid-Cap Fund:

A mid-cap fund is a type of investment fund that focuses on companies who capitalize in mid-range stocks available in the equity market. Companies that have a capitalization range from $2 billion to $10 billion are considered mid-cap companies.

Small-Cap Fund:

A small-cap fund is a type of investment that focuses on the stock of publicly traded companies that have a market capitalization that lies in the range of $300 million to $2 billion.

Why Should We Buy Mid-Cap and Small-Cap Funds?

Small cap stocks are beneficial for individual investors because they give them an edge over institutional investors. It is mainly because institutional investors generally make huge block purchases. Now, in a large-cap stock, that may not make up a huge portion of the company and even with their hefty purchases, they may just have purchased a fraction of the entire stock, but when it comes to small-cap companies, buying large amounts of stock could trigger the Securities and Exchange Commission. Thus, the investors would have to make their purchase public knowledge which leads to an inflation in stock price. But for individual investors, investment of money in small-cap funds is ideal because they do not purchase big blocks of stock, hence they could continue their investment without triggering the SEC filing requirements.

Mid-cap funds offer the investors with a wide range of mid-cap companies. Mid-cap investments are usually in firms with an established business. Mid-cap companies tend to offer a large number of investment options and have better growth potential in comparison to large-cap stocks and a lesser risk factor and volatility compared to that of the small-cap segment. For long-term investors, mid-cap funds are ideal. Overall mid-cap funds tend to have a higher volatility rate than large-cap funds, but at the end of the day, investors who stick around to reap the long-term profits are the ones who end up with a considerable amount of wealth.

When Should We Buy Mid-Cap and Small-Cap Funds?

The best way to time the investment in small-cap funds is to make an investment when the market has been down for quite some time. It may be difficult to decide exactly when that time has arrived but the signs should be clear. There appears to be no optimism about the stock market among the investors and the market has hit an over-all low for the year. Extreme pessimism can be felt on both, the local and international media, and when the country’s finances don’t look especially good.

Investments in mid-cap funds carry a ‘high risk – high return’ proposition. During the rising phase of the equity market, mid-cap investments increase the pace of wealth that goes back to the investors, but when the market starts to go downhill, a sheer drop is observed in the profits from mid-cap funds. Basically, mid-cap funds are vulnerable to turbulence in the market and are highly affected by both upward and downward trends in the economy.