Mid caps are the stocks that fall between the large cap stocks and small cap stocks. These represent mid-sized companies that are relatively more risky than large cap as investment options yet, they are not considered as risky as small cap companies. Mid cap stocks as an investment tend to reap higher returns in 3 to 5 years when compared to large cap stocks that usually provide moderate returns with exposing investments to low risk during the investment timeframe.
Small Cap stocks lie at the bottom rung of market valuations and suffer from the misconception of being dangerous and risky or ‘quick rich’ stocks. However, both these labels are often said to be myths. Investment in these stocks consists of smaller revenue and client bases, and usually includes the start-ups or companies in the early stage of development. Small cap stocks are potentially big gainers; however, as these enterprises are small ventures, these investments tend to be risky. Small caps can prove to be a very wise ‘long term’ investments especially if the chosen companies are good businesses and are well-managed.
Mutual Fund schemes that invest in mid and small cap stocks are known as Mid and Small Cap Funds. These funds have been called exciting because even though they have the capability to create wealth in a short period of time but can be risky as well. It is probably about time to weigh the pros and cons of such an investment avenue.