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.
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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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