investment company

Definition

Public corporation organized to invest in large blocks of securities of diverse firms, and to obtain its capital from issues of shares or units. Investment companies give a small investor the advantage of a full time professional investment management, and a very much wider spread of risk that it would have been otherwise possible. They are divided into three major types: (1) Open-end funds (also called mutual funds) which have a floating number of issued shares, and sell or redeem their shares at their current net asset value (NAV); (2) Closed-end funds (also called investment trusts) which can sell only a fixed number of shares which are traded on stock exchanges, usually at a discount to their net asset value; and (3) Unit investment trusts (also called unit trusts) which sell their redeemable securities (called units) which represent interests in the securities held by the trust in its investment portfolio. A unit holder is not a shareholder in a unit trust. See also investment club.