what is an investment company 
an investment company is a corporation or trust engaged in the business of investing the pooled capital of investors in financial securities this is most often done either through a closed end fund or an open end fund also referred to as a mutual fund in the u s most investment companies are registered with and regulated by the securities and exchange commission sec under the investment company act of 1940 an investment company may be known as a fund company or fund sponsor they often partner with third party distributors to sell mutual funds understanding an investment companyinvestment companies are business entities both privately and publicly owned that manage sell and market funds to the public the main business of an investment company is to hold and manage securities for investment purposes but they typically offer investors a variety of funds and investment services which include portfolio management recordkeeping custodial legal accounting and tax management services an investment company can be a corporation partnership business trust or limited liability company llc that pools money from investors on a collective basis the money pooled is invested and the investors share any profits and losses incurred by the company according to each investor s interest in the company for example assume an investment company pooled and invested 10 million from a number of clients who represent the fund company s shareholders a client who contributed 1 million will have a vested interest of 10 in the company which would also translate into any losses or profits earned investment companies are categorized into three types closed end funds mutual funds or open end funds and unit investment trusts uits each of these three investment companies must register under the securities act of 1933 and the investment company act of 1940 1investment companies may charge fees on their products including management fees and other expenses which can reduce returns investors should carefully review the fund s prospectus and performance before investing in a closed end fund closed end fundsclosed end funds issue a fixed number of shares that may then be traded on stock exchanges as demand increases or wanes for fund shares the supply of them remains the same the price of the shares is thus determined by demand in the market and can trade at a premium or discount to the fund s net asset value nav although the units or shares of closed end funds are typically offered at an initial discount to their nav investors who want to sell shares will sell them to other investors on the secondary market at a price determined by market forces and participants making them not redeemable since investment companies with a closed end structure issue only a fixed number of shares back and forth trading of the shares in the market has no impact on the portfolio 2mutual fundsmutual funds have a floating number of issued shares and investors may sell or redeem their shares back to the fund or the broker acting for the fund at their current net asset value at each trading day s closing nav as investors move their money in and out of the fund the fund expands and contracts respectively open ended funds are often restricted to investing in liquid assets given that the investment managers have to plan in a way that the fund is able to meet the demands for investors who may want their money back at any time mutual fund companies may charge fees including management fees 12b 1 fees and other expenses which can reduce returns although the trend has been that fees have gotten lower over time mutual funds are popular among investors because they can offer diversification and professional management however investors should carefully review the fund s prospectus and performance before investing in a mutual fund 3unit investment trusts uits a unit investment trust uit issues a set number of units that represent undivided interests in a specific fixed portfolio of securities they have a specified termination date and investors receive a pro rata share of the uit s net assets upon termination uits are passive investments in that they typically invest in a fixed portfolio of securities such as stocks or bonds and are not actively traded or rebalanced like the portfolios of mutual funds or closed end funds uits may charge fees including a creation and development fee a trustee fee and other expenses which can reduce returns 4each of these fund types can invest in a variety of securities such as stocks bonds and commodities some may also use leverage to enhance returns but this also increases the risk involved 