Investment company: Difference between revisions
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In [[United States securities law]], there are at least three types of investment companies:<ref>{{cite web|url=https://www.sec.gov/answers/mfinvco.htm |title=Investment Companies |publisher=U.S. Securities and Exchange Commission (SEC) |access-date=2006-04-11}}</ref> |
In [[United States securities law]], there are at least three types of investment companies:<ref>{{cite web|url=https://www.sec.gov/answers/mfinvco.htm |title=Investment Companies |publisher=U.S. Securities and Exchange Commission (SEC) |access-date=2006-04-11}}</ref> |
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* Open-End Management Investment Companies ([[mutual fund]]s) |
* Open-End Management Investment Companies ([[mutual fund]]s) |
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*Face amount certificates companies: very rare |
*Face amount certificates companies: very rare |
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*Management companies |
*Management companies |
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* Closed-End Management Investment Companies ([[closed-end fund]]s) |
* Closed-End Management Investment Companies ([[closed-end fund]]s) |
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* UITs ([[unit investment trust]]s): only issue redeemable units |
* UITs ([[unit investment trust]]s): only issue redeemable units |
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* Exchange-traded funds ([[Exchange-traded fund|ETFs]]) |
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In general, each of these investment companies must register under the [[Securities Act of 1933]] and the [[Investment Company Act of 1940]].<ref>Lemke, Lins and Smith, ''Regulation of Investment Companies'', §4.01 (Matthew Bender, 2016 ed.).</ref> A fourth and lesser-known type of investment company under the [[Investment Company Act of 1940]] is a [[Face-amount certificate company|Face-Amount Certificate Company]]. |
In general, each of these investment companies must register under the [[Securities Act of 1933]] and the [[Investment Company Act of 1940]].<ref>Lemke, Lins and Smith, ''Regulation of Investment Companies'', §4.01 (Matthew Bender, 2016 ed.).</ref> A fourth and lesser-known type of investment company under the [[Investment Company Act of 1940]] is a [[Face-amount certificate company|Face-Amount Certificate Company]]. |
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A major type of company not covered under the [[Investment Company Act 1940]] is '''private investment companies''', which are simply private companies that make investments in stocks or bonds, but are limited to under 250 investors and are not regulated by the SEC.<ref>[https://www.sec.gov/investor/pubs/invclub.htm "Investment Clubs and the SEC"], ''sec.gov'', Modified January 16, 2013.</ref> These funds are often composed of very wealthy investors. |
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Investment companies that choose to register under the Investment Company Act of 1940, or any investment fund that is subject to similar regulation in another jurisdiction are considered regulated funds. This provides certain protections and oversight for investors. Regulated funds normally have restrictions on the types and amounts of investments the fund manager can make. Typically, regulated funds may only invest in listed securities and no more than 5% of the fund may be invested in a single security. The majority of investment companies are mutual funds, both in terms of number of funds and assets under management.<ref name=":0">{{Cite web |date=2023 |title=Investment company Fact Book |url=https://www.ici.org/system/files/2023-05/2023-factbook.pdf |publisher=[[Investment Company Institute]]}}</ref> |
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== History == |
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The first investment trusts were established in Europe in the late 1700s by a Dutch trader who wanted to enable small investors to pool their funds and diversify. This is where the idea of investment companies originated, as stated by [[Geert Rouwenhorst|K. Geert Rouwenhorst]].<ref name=":0" /><ref>{{Cite book |last=Rouwenhorst |first=K. Geert |author-link=Geert Rouwenhorst |title=The Origins of Mutual Funds |publisher=Yale School of Management - International Center for Finance |year=2004}}</ref> In the 1800s in England, "investment pooling" emerged with trusts that resembled modern investment funds in structure. For example, the [[Foreign and Colonial Government Trust]] formed in London in 1868 provided small investors the advantages of diversification previously only available to the wealthy. |
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[[Scottish American Investment Trust|The Scottish American Investment Trust]], founded in 1873, was one of the first funds to invest in American securities and help finance the post-[[Civil war|Civil War]] U.S. economy. This established a link between British fund models and U.S. markets. The first mutual fund, or open-end fund, was introduced in Boston in 1924 by the Massachusetts Investors Trust. This fund introduced innovations like continuous share offerings, share redemptions, and clear investment policies. |
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The 1929 stock market crash and [[Great Depression]] temporarily hampered investment funds. But new securities regulations in the 1930s like the 1933 Securities Act restored investor confidence. A number of innovations then led to steady growth in investment company assets and accounts over the decades.<ref>{{Cite web |date=May 2022 |title=How US-Registered Investment Companies Operate and the Core Principles Underlying Their Regulation |url=https://www.ici.org/system/files/2023-06/us-reg-funds-principles.pdf |publisher=[[Investment Company Institute]]}}</ref> |
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==See also== |
==See also== |
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Revision as of 23:26, 3 April 2024
 | The examples and perspective in this US-centric article may not represent a worldwide view of the subject. (March 2022) |
An investment company is a financial institution principally engaged in holding, managing and investing securities. These companies in the United States are regulated by the U.S. Securities and Exchange Commission and must be registered under the Investment Company Act of 1940. Investment companies invest money on behalf of their clients who, in return, share in the profits and losses.
Investment companies are designed for long-term investment, not short-term trading.
Investment companies do not include brokerage companies, insurance companies, or banks.
In United States securities law, there are at least three types of investment companies:[1]
- Open-End Management Investment Companies (mutual funds)
- Face amount certificates companies: very rare
- Management companies
- Closed-End Management Investment Companies (closed-end funds)
- UITs (unit investment trusts): only issue redeemable units
- Exchange-traded funds (ETFs)
In general, each of these investment companies must register under the Securities Act of 1933 and the Investment Company Act of 1940.[2] A fourth and lesser-known type of investment company under the Investment Company Act of 1940 is a Face-Amount Certificate Company.
A major type of company not covered under the Investment Company Act 1940 is private investment companies, which are simply private companies that make investments in stocks or bonds, but are limited to under 250 investors and are not regulated by the SEC.[3] These funds are often composed of very wealthy investors.
Investment companies that choose to register under the Investment Company Act of 1940, or any investment fund that is subject to similar regulation in another jurisdiction are considered regulated funds. This provides certain protections and oversight for investors. Regulated funds normally have restrictions on the types and amounts of investments the fund manager can make. Typically, regulated funds may only invest in listed securities and no more than 5% of the fund may be invested in a single security. The majority of investment companies are mutual funds, both in terms of number of funds and assets under management.[4]
History
The first investment trusts were established in Europe in the late 1700s by a Dutch trader who wanted to enable small investors to pool their funds and diversify. This is where the idea of investment companies originated, as stated by K. Geert Rouwenhorst.[4][5] In the 1800s in England, "investment pooling" emerged with trusts that resembled modern investment funds in structure. For example, the Foreign and Colonial Government Trust formed in London in 1868 provided small investors the advantages of diversification previously only available to the wealthy.
The Scottish American Investment Trust, founded in 1873, was one of the first funds to invest in American securities and help finance the post-Civil War U.S. economy. This established a link between British fund models and U.S. markets. The first mutual fund, or open-end fund, was introduced in Boston in 1924 by the Massachusetts Investors Trust. This fund introduced innovations like continuous share offerings, share redemptions, and clear investment policies.
The 1929 stock market crash and Great Depression temporarily hampered investment funds. But new securities regulations in the 1930s like the 1933 Securities Act restored investor confidence. A number of innovations then led to steady growth in investment company assets and accounts over the decades.[6]
See also
References
- ^ "Investment Companies". U.S. Securities and Exchange Commission (SEC). Retrieved 2006-04-11.
- ^ Lemke, Lins and Smith, Regulation of Investment Companies, §4.01 (Matthew Bender, 2016 ed.).
- ^ "Investment Clubs and the SEC", sec.gov, Modified January 16, 2013.
- ^ a b "Investment company Fact Book" (PDF). Investment Company Institute. 2023.
- ^ Rouwenhorst, K. Geert (2004). The Origins of Mutual Funds. Yale School of Management - International Center for Finance.
- ^ "How US-Registered Investment Companies Operate and the Core Principles Underlying Their Regulation" (PDF). Investment Company Institute. May 2022.
