When a company pools funds from investors in order to buy a variety of securities, the fund is known as a mutual fund. The mutual fund company issues units of the fund and sells it to the public. The cost of the fund depends on how many units are bought. Usually the payment of the number of units is done over a fixed period of intervals. Investing in mutual funds is one of the safest options for an investor. It is preferred sometimes over directly investing in the stock market. A mutual fund is usually spread out over a variety of companies and industries, which is why it is safer. If one company tanks, then not all is lost. Another one may rise in value and offset the loss.

A mutual fund that invests primarily in stock is known as an equity mutual fund. Equity funds are of various types depending upon the company invested in and the style of investment. The term market capitalisation is used to classify the company invested in. The short form, market cap, can also be used. This means the value of the shares issued by a company that has gone public in the share market. This value is arrived at by multiplying the number of shares outstanding with the price of a share. This offers the public estimation of a company. Market capitalisation then is divided into several types. The three main divisions are small cap, mid cap and large cap. A small cap is usually a start-up which means it has room for growth. It is perceived as a get-rich-quick option but it is also risky. Large cap stocks belong to large, well-established companies. They are considered safe since they have been in the market for a while and have grown with it. Consequently they will continue to grow.

Mid cap funds fall in between these two. They usually are the stock of mid range companies, riskier than large cap stock and safer than small cap stock. A mid cap company has basically survived the initial teething issues a new company has undergone and is slowly able to establish itself in the market. Unfortunately, market forces are still strong enough to change its directions so the risk factor is present. The advantage of a mid cap fund is that it still has room for growth and the dividends yielded can be higher in a shorter amount of time as opposed to a large cap. Therefore it is a good middle ground for medium risk as well as high returns.