An investment company is a business entity that pools the capital of investors to invest in financial securities. This process is typically undertaken through either closed-end funds or open-end funds, commonly known as mutual funds. In the United States, these companies are registered with and regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940.
An investment company is also referred to as a “fund company” or
Related Terms: open-end fund, hedge funds, private equity funds, venture capital, accredited investors.
References
- Investor.gov. “Hedge Funds”.
- Collins Advisors. “The History of the Mutual Fund”.
Get ready to put your knowledge to the test with this intriguing quiz!
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## What is the primary function of an investment company?
- [ ] Managing individual bank accounts
- [x] Pooling funds from multiple investors to invest in securities
- [ ] Providing personal loans
- [ ] Conducting high-frequency trading
## Which of the following is a type of investment company?
- [ ] Credit union
- [ ] Mortgage lender
- [x] Mutual fund
- [ ] Insurance company
## What legislation primarily governs investment companies in the United States?
- [ ] Securities Exchange Act of 1934
- [x] Investment Company Act of 1940
- [ ] Sarbanes-Oxley Act
- [ ] Dodd-Frank Act
## Which type of investment company allows investors to purchase shares on a stock exchange?
- [ ] Hedge fund
- [ ] Real estate investment trust (REIT)
- [ ] Pension fund
- [x] Exchange-traded fund (ETF)
## Open-end investment companies are commonly known as what?
- [ ] Hedge funds
- [ ] BDCs
- [x] Mutual funds
- [ ] Separate accounts
## Closed-end investment companies have which key feature?
- [ ] Unlimited share issuance
- [ ] Continuous share buying and selling with the company
- [x] Fixed number of shares outstanding
- [ ] Daily calculation of NAV
## What is a common fee associated with mutual funds?
- [ ] Mortgage insurance
- [ ] Wire transfer fee
- [x] Expense ratio
- [ ] Late payment fee
## What distinguishes a hedge fund from other investment companies?
- [ ] Strict regulation and limited investment strategies
- [ ] High liquidity and availability to the general public
- [ ] Investment primarily in fixed income securities
- [x] Flexible investment strategies and less regulation
## Dividend reinvestment plans (DRIPs) are most commonly associated with which type of investment company?
- [ ] Closed-end funds
- [ ] Hedge funds
- [x] Mutual funds
- [ ] Private equity funds
## Which type of investment company is designed to provide a steady income stream to investors?
- [ ] Venture capital firms
- [ ] Conventional stock funds
- [x] Income funds
- [ ] Growth funds
