Market capitalization is the value the stock market places on a company. It is calculated by multiplying the number of common shares outstanding by the current share price. Funds may behave differently depending on the market capitalization – small, medium or large – of the securities they hold.

Small-cap funds generally invest in companies with a median market capitalization within the bottom 80% of the largest 5,000 domestic companies. Dividends tend to be low because earnings are usually reinvested in a company to promote growth. The investment objective of small-cap funds is typically the appreciation of share price. Because small-cap companies tend to be less established and predictable than bigger companies, small-cap funds are usually more volatile, higher-risk investments than larger-cap funds.

Medium-cap (Mid-cap) funds usually invest in companies with median market capitalization that falls between the top 5% and bottom 80% of the largest 5,000 domestic companies. These funds can be somewhat more volatile than large-cap funds, but are generally less risky than funds devoted exclusively to smaller companies.

Large-cap funds generally invest in companies with a median market capitalization within the top 5% of the largest 5,000 domestic companies. The securities of larger, more established companies typically pay dividends, which provide income that can help reduce the effects of market swing. Large-cap funds tend to be less volatile and lower risk than smaller-cap funds