Investment Company, Investment Firm, Investment Companies

An investment company is one that is in the business of investing in securities. Its core business is to hold securities of other companies only for investment purposes. The profits and losses are shared among those who invest in aninvestment firm as per their portfolio. The performance of the securities is the major factor determining the performance ofinvestment companies.

Types of Investment Companies

The following are the main types of investment companies:

An investment company is one that is in the business of investing in securities. Its core business is to hold securities of other companies only for investment purposes. The profits and losses are shared among those who invest in aninvestment firm as per their portfolio. The performance of the securities is the major factor determining the performance ofinvestment companies.

Types of Investment Companies

The following are the main types of investment companies:

Management Investment Company: Most investment companies are management investment companies, which are engaged in managing portfolios of securities. Management investment companies can be divided into two categories depending upon the types of securities they offer:

• Open-End Investment Company: This type of investment company issues new shares on a continuous basis. The shares may be bought from and sold back to the investment company. Open-end investment companies may also be referred to as mutual funds.

 

• Closed-End Investment Company: This type of investment company sells shares in a onetime public offering. The shares are not offered on a continuous basis. Investors can buy and sell the shares in the open market. The demand and supply of the shares of these closed-end funds determine their market value.

Unit Investment Trusts (UITs): These investment companies have the following features:

• A trustee supervises the management of a UIT investment company.
• A predetermined number of shares are sold to unit holders, who become eligible for a share of net income that the main trust generates.
• The securities of UITs are redeemable.
• The portfolio of securities is not managed on a daily basis.

Exchange-Traded Funds (ETFs): These investment companies can be either UITs or open-end investment companies. The goal of ETFs is to attain a return equal to a particular market index.

Hedge Funds: These are investment pools that are private and unregistered. They are not subject to the numerous regulations that protect investors of mutual funds.

Face Amount Certificates: These investment companies are engaged in issuing debt certificates at a fixed interest rate. Such investment companies are rare today. Face amount certificate holders can covert them into cash on a predetermined date before maturity. Buyers can pay either a lump-sum or periodic installments.