Legal Definitions - investment company

An investment company is a business that pools money from many individual investors and then invests that collective capital in a portfolio of securities, such as stocks, bonds, and other financial assets. These companies professionally manage these investments on behalf of their shareholders, aiming to generate returns. They are subject to specific regulations designed to protect investors.

Here are some examples to illustrate this concept:

• Example 1: Sarah wants to invest in a broad range of U.S. stocks but lacks the time and expertise to research and select individual companies. She decides to put her savings into a large-cap equity mutual fund offered by "Global Growth Investments Inc."

  Explanation: "Global Growth Investments Inc." is acting as an investment company. It gathers money from Sarah and thousands of other investors, combines it into a single large pool, and then uses that pool to buy and manage a diversified portfolio of stocks. Sarah, as an investor, owns shares in the mutual fund, not directly in the individual companies the fund invests in, and benefits from the fund's professional management.

• Example 2: A financial institution, "MarketTrack Funds," creates and manages several Exchange-Traded Funds (ETFs), including one that tracks the performance of the technology sector and another that focuses on emerging market bonds.

  Explanation: "MarketTrack Funds" operates as an investment company. It designs and offers ETFs, which are investment vehicles that pool investor money to purchase a basket of securities (like tech stocks or emerging market bonds) according to a specific strategy. Investors can then buy and sell shares of these ETFs on a stock exchange, gaining exposure to a diversified portfolio without having to buy each underlying security individually.

• Example 3: "Infrastructure Capital Partners" raises a fixed amount of money through an initial public offering (IPO) by selling shares to the public. It then uses this capital to invest in a portfolio of toll roads, utility companies, and other infrastructure projects. The shares of "Infrastructure Capital Partners" are subsequently traded on a major stock exchange.

  Explanation: "Infrastructure Capital Partners" functions as a closed-end investment company. It pools capital from investors and uses that capital to invest in a specific, managed portfolio of assets (in this case, infrastructure-related holdings). Unlike a mutual fund, it has a fixed number of shares, and investors buy and sell these shares among themselves on an exchange, rather than directly redeeming them with the company.