Define Small Cap Fund

Mutual funds have three distinct divisions for companies.

Investors divide mutual funds into three main categories: small cap, mid cap and large cap. A company's market capitalization is the basis of these main mutual fund divisions. Knowing a few basics about market capitalization will help you to better understand the definition of a small cap fund.

Small Cap Funds

Small cap funds are companies that have a market capitalization, or estimated worth, of between $250 million and $1 billion. Once a company's market capitalization goes over $1 billion, it moves to the mid cap fund category.

Market Capitalization

Market capitalization is an educated estimate of the value of a company. Investors determine this value by multiplying the current price per share by the number of shares outstanding.

Company Size

Mutual fund managers invest small cap funds in smaller companies. Generally, small cap funds are more volatile and pose a higher investment risk than large cap funds.

References

• The Motley Fool: Mutual Funds Glossary
• Yahoo Finance: Large Cap and Small Cap Funds Explained