the investment company act of 1940 is an act of congress that regulates the organization of investment companies and the activities they engage in it sets standards for the investment company industry a primary purpose of the act is to protect investors by ensuring that they re aware of the risks associated with buying and owning securities 
investment companies are required by the act to provide investors with information about their investment objectives investment policies and financial condition when stock is first sold and henceforth at regular intervals investment companies must also inform investors about investment company structure and operations the act was signed into law by president franklin d roosevelt along with the investment advisers act of 1940 both give the u s securities and exchange commission sec power to regulate investment trusts and investment counselors 1understanding the investment company act of 1940the legislation in the investment company act of 1940 is enforced and regulated by the securities and exchange commission sec this legislation defines the responsibilities and requirements of investment companies and the requirements for any publicly traded investment product offerings such as open end mutual funds closed end mutual funds and unit investment trusts the act primarily targets publicly traded retail investment products 2the investment company act of 1940 was passed in order to establish and integrate a more stable financial market regulatory framework following the stock market crash of 1929 it is the primary legislation governing investment companies and their investment product offerings the securities act of 1933 was also passed in response to the crash but it focused on greater transparency for investors the investment company act of 1940 is focused primarily on the regulatory framework for retail investment products 34the act details rules and regulations that u s investment companies must abide by when offering and maintaining investment product securities provisions of the act address requirements for filings service charges financial disclosures and the fiduciary duties of investment companies 5the act also provides regulations for transactions of certain affiliated persons and underwriters accounting methodologies record keeping requirements auditing requirements how securities may be distributed redeemed and repurchased changes to investment policies and actions in the event of fraud or breach of fiduciary duty the investment company act of 1940 has greatly protected the retirement savings of individuals as mutual funds are a large component of retirement plans such as 401 k s and annuities further it sets forth specific guidelines for different types of classified investment companies and includes provisions governing the rules of companies operating products including unit investment trusts open end mutual funds closed end mutual funds and more 6defining an investment companythe act also defines what qualifies as an investment company companies seeking to avoid the product obligations and requirements of the act may be eligible for an exemption for example hedge funds sometimes fall under the act s definition of investment company but may be able to avoid the act s requirements by requesting an exemption under sections 3 c 1 or 3 c 7 7in accordance with the investment company act of 1940 investment companies must register with the sec before they can offer their securities in the public market the act also lays out the steps an investment company is required to take during this registration process 8companies register for different classifications based on the type of product or the range of products that they wish to manage and issue to the investing public in the u s there are three types of investment companies categorized according to federal securities laws mutual funds open end management investment companies unit investment trusts uits and closed end funds closed end management investment companies requirements for investment companies are based on their classification and their product offerings 9dodd frank act and partial repealafter the great recession president obama signed the dodd frank wall street reform and consumer protection act in 2010 it is an extremely large piece of legislation that resulted in the creation of new government agencies to oversee different aspects of the act and hence the entire financial system in the u s the act impacted several areas including consumer protection trading restrictions credit ratings financial products corporate governance and transparency 101112dodd frank impacted the investment advisers act of 1940 more than it did the investment company act of 1940 however hedge funds have been impacted by dodd frank 13under the investment company act hedge funds were not required to register this gave hedge funds a significant amount of carte blanche in their trading activities dodd frank established new rules for hedge funds and private equity funds to register with the sec and abide by certain disclosure requirements based on their size 13