Mutual Funds and Hedge Funds

Stock funds may also be classified according to the market capitalization of the companies in which they invest. The market capitalization, or "market cap", of a company is simply the value of the company on the stock market -- in other words, it is the number of outstanding shares of the company times the price of those shares. There are three main types of cap funds: large-cap, mid-cap, and small-cap. Although the dividing line isn't precise, large cap funds tend to invest in companies with market caps above $10 billion, mid cap funds tend to invest in companies with market caps of $1 billion to $10 billion, and small cap funds tend to invest in companies with market caps below $1 billion. Some mutual funds also add a fourth category called micro-cap funds to describe funds that invest in companies worth less than $250 million. In general, the smaller the average market cap of the fund's holdings, the more volatile the return; micro-cap funds can be especially risky.