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What Is a mid-Cap Value Fund?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 26 November 2016
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A mid-cap value fund is a type of pooled investment vehicle which concentrates its investments on the stocks which are considered mid-caps. Although the definition differs among various investment firms, mid-cap stocks are generally considered to be those issued by companies which have market capitalization somewhere between $2 billion US Dollars (USD) and $10 billion USD. The goal of a mid-cap value fund is to identify those middle-market companies that are undervalued by the market and have excellent growth potential. If the investments within a fund grow in value, those profits are shared among all of the investors within the fund.

When investors attempt to build a portfolio, they often do so with the hopes of creating exceptional diversification. But buying stocks from all across the spectrum of the market can be a costly undertaking. Mutual funds provide an easy path to diversification, allowing individuals to make a single investment which touches on a broad array of stocks. One such mutual fund available to investors is a mid-cap value fund, which attempts to find the most promising middle-market stocks on the market.

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Any investor seeking out a mid-cap value fund must have a fondness for mid-cap stocks. These stocks are generally issued by companies which have somewhere between $2 billion USD and $10 million USD in market capitalization. A company's market capitalization is determined by taking the current stock price of the company and multiplying it by the amount of outstanding shares it has issued to investors.

The market capitalization of mid-cap companies places them squarely between the so-called small-cap and large-cap companies in the hierarchy of the stock market. Many investors prefer mid-caps because they have more potential for upward growth than long-established large-caps. In addition, mid-caps tend to provide more stability than small-cap stocks, which are often issued by companies just starting out that have no track record. A mid-cap value fund plays off of these characteristics to try and find the mid-cap stocks that may not be properly represented by their current market price.

As with any mutual fund, a mid-cap value fund requires an investor to make a minimum payment up front to participate. The money included in a fund is handled by a fund manager, who spells out the goals of the fund to investors in a written document known as an investment prospectus. Investors determine the worth of the fund by studying its net asset value, which is a price that represents the average value of all of the different stocks included in the fund.

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