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What is a Mid Cap Equity Fund?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 01 November 2016
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A mid cap equity fund is a mutual fund which focuses its investments on stocks classified as mid cap, or middle capitalization. Although such classifications often depend upon the standards of various investment firms, mid cap is generally defined as those stocks belonging to companies with market capitalization between $2 billion US Dollars (USD) and $10 billion USD. Exposure to these stocks through a mid cap equity fund allows affordable access to a highly-valued segment of the market. As with all mutual funds, a mid cap fund takes capital from many investors who share in the profits and losses of the investments within the fund.

For an investor seeking to diversify his portfolio, mutual funds are an excellent way to achieve this. These funds spread their investments throughout different securities, thus allowing investors the chance for exposure to a great many opportunities at a fraction of the cost that it would take to invest in each security individually. Since middle-market companies are often the target of investors seeking a combination of stability and growth potential, a mid cap equity fund can be an effective way to get involved with this portion of the market.

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Companies that have a market capitalization between $2 billion USD and $10 billion USD are the typical targets of a mid cap equity fund. A company's market capitalization is determined by multiplying its current stock price by the amount of shares owned by investors. As the name suggests, a mid cap company falls between small cap companies just starting out and the well-established, large cap companies which dominate the market.

To participate in a mid cap equity fund, an investor usually has to commit a minimum amount of capital. A fund manager with significant investment experience takes all of the funds procured from multiple investors and is in charge of investing those funds in the stock of publicly-traded middle market companies. Investors receive profits from those investments in the form of capital gains, although a fee is deducted to pay for the fund management.

There are many benefits to participating in a mid cap equity fund. Mid cap companies have a bit more stability than small caps, which are often just starting out and, as a result, are relatively risky investments. On the other hand, mid cap stocks have much more growth potential than large caps, which are generally static in value and provide a very small profit margins to investors. Those people interested in a particular mid cap fund can check out its investment prospectus, which spells out the various investments within the fund, expected return on the investments compared to their risk, and future strategies and goals for the capital within the fund.

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