What Is an Investment Company?

What Is an Investment Company?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

An investment company is a corporation or trust that uses its capital to invest in diverse securities belonging to other companies. The types of investment companies include mutual funds, closed-end funds, unit investment trusts (UITs), and exchange-traded funds (ETFs). They make profit by gaining a return on the investments they make. Investment companies allow their shareholders to take advantage of a broader, more managed portfolio compared to if they were to make the investments on their own.

Related Questions

1. How do investment companies make money?

Investment companies earn money in different ways. However, the main method is through buying and selling stocks, bonds, and shares. Some companies also make money by charging service fees to their clients for advice and management of portfolios.

2. What is the role of an investment company?

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The role of an investment company is to manage diversified portfolios of stocks, bonds, and other securities on behalf of its shareholders. This provides shareholders the opportunity to invest without needing the time, expertise or resources to manage a portfolio themselves.

3. Are investment companies safe?

Whether an investment company is safe or not depends on several factors. Some companies are safer than others based upon their track records, credibility, and available protections. But remember, investing always comes with a certain level of risk, so it’s important to do your own research and make informed decisions.

4. What is a closed-end fund?

A closed-end fund is a type of investment company with a fixed number of shares. Unlike open-end funds, new shares in closed-end funds are not created by managers to meet demand from investors. Instead, the shares can be purchased and sold only in the market.

5. What is a mutual fund?

A mutual fund is a type of investment company that pools money from many investors and invests it in a diversified portfolio of securities such as stocks, bonds, and short-term money market instruments. The combined holdings the mutual fund owns are known as its portfolio, and each share represents an investor’s proportionate ownership of the fund’s holdings and the income those holdings generate.