Are you interested in learning more about how an investment company works? Let’s start with a definition: investment companies are generally LLCs, corporations, or partnerships which issue and/or invest in securities.
Investment companies typically accept money from investors, invest that money into securities or other assets, and then provide a return based on the performance of the investments. That return will not be the same as the return of the underlying securities since the investment company generally deducts fees and expenses from those returns.
There are three basic types of investment company. They are known as closed-end funds (or closed-end companies), mutual funds, and Unit Investment Trusts (or UITs). Each of the three types of investment company funds is different from one another. For example, shares in closed-end funds cannot be redeemed (though they can be sold on the secondary market). Shares in mutual funds and UITs are redeemable – in other words they can be sold back to the fund or the broker acting on the fund’s behalf. Each of the three types of funds may invest in a variety of different types of assets or securities, including stocks, bonds, money market securities, and ETFs.
Placing money with an investment company can potentially provide individuals with the following set of benefits:
- Regular monthly, quarterly, or annual returns
- No need to make or monitor individual investment decisions
- Active money management
- The potential for higher returns through professional investment advisors
Therefore, if you decide to put your money with an investment company, you have the potential to gain the advantages provided by each of the benefits listed above. However, before investing you should be sure to carefully read all of the investment company’s printed material including its prospectus.