Private and public investment companies invest in securities. Investment firms manage, sell, and market funds to investors. There are three types of investment companies that are available to investors:
Image source: photoeverywhere.co.uk
1. Mutual funds
Legally known as open-ended companies, these pool funds from investors and invest those funds in stocks, bonds, other securities, etc. The investors pay for the mutual fund shares, the approximate net asset value (NAV) per share, which is usually computed per day. Sales loads are also included in NAV and shares are redeemable. Mutual funds are registered with the Securities Exchange Commission (SEC ) and investment advisers that are registered with SEC usually manage the investment portfolio of mutual funds.
2. Closed-end fund
Closed-end funds are also known as closed-end investment companies, which issue shares to the public once and do not continuously offer shares. Furthermore, their shares are not redeemable. Their market value shares will be based on supply and demand. These companies’ investment portfolios are also managed by investment advisers from SEC.
3. Unit Investment Trusts (UIT)
Just like closed-end funds, UITs issue shares to public once. On the other hand, their shares are redeemable just like mutual funds. They offer a fixed number of shares to unit holders. Their portfolio is not managed, only supervised, because the shares are fixed.
Image source: flickr.com