Cap fund
Cap funds are also known as Capitalization funds. These are a form of mutual funds that are invested in equity security without regard of the company being large, medium or small. The nature of the cap funds depends upon the amount of the fund. If the fund is above $200 billion then it is categorized into giant or mega cap fund, large cap funds range from $10 billion to an extent of $200 billion, mid cap funds are in the range of $300 million to $10 billion, small cap funds come in the range of $300 million to $2 billion and if the amount is less than $300 million than it is called as micro cap fund.
Types of cap funds
The type of the capitalization fund depends upon the amount of the fund. Therefore, the cap funds can be classified into:
Large-Cap Funds: These are those funds that commonly invest in companies that have a market value of more than $8 billion. These funds are mainly interested in those companies that have more prospects of earning growth and higher profit. Some of the advantages of the large cap funds are that they are less volatile than funds that are invested in smaller companies and even the near term prospects of these funds can even be predicted easily. All though the rates of return on the large cap funds are generally low as compared to the other funds but they outperform all other funds in other matters.
Mid-Cap Funds: These are funds that are invested in small or the medium sized companies. Generally they fall into the $300 million to $10 billion category. They are a little volatile as the stocks in the lower end ranges are likely to show growth characteristics of the small companies. They are a good option when the investor wants to add some diversity into his investments.
Small-Cap Funds: These are funds that are invested in a company of market value between $300 billion to $2 billion. These are funds that seek maximum growth or returns on the investment. The volatility of these funds commonly depends upon the nature of the manager. If the manager is aggressive than he will be thinking of growth and buying latest technology and even taking greater risks, keeping in mind the higher returns. Because of the volatile nature of these funds, they require adequate time for making up for any short term losses.
Micro-Cap Funds: These funds are invested in companies having market value of less than $250 million. These companies are generally for startups, for companies that are in the way of exploiting new markets and for the takeover candidates. The risk factors related to these funds are extremely high which makes them very volatile. But, the best part of these funds is that there is a very high potential of growth in these funds.
Thus, with an understanding of all the above types of funds the various investors can easily decide upon their investment and the type that suits their needs.
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