An investment company is a financial firm that engages solely in the business of investing, reinvesting and holding securities for investors. It invests the collective funds of numerous separate investors in a portfolio of securities with the goal to generate income or maximize the capital gain on the assets.
Most US investment companies are registered with and regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940. A US registered investment company is either an open-end investment company, closed-end investment company, unit investment trust or face-amount certificate company.
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Any US investment company other than a unit investment trust or a face-amount certificate company is a management company. A management company holds the fund's investment portfolio and issues its shares. They are open-end or closed-end and either diversified or non-diversified. Their shares typically trade in the secondary market, commonly on stock exchanges.
Management companies operate under supervision of a board of directors or board of trustees. The board approves the contract with the management company and other service providers and oversees its management and fund manager. Each management company is a separate legal entity that has its own shareholders.
The fund manager is hired by the management company to manage the firm's portfolios, market the funds, and perform other fund-related administrative activities. Funds must be managed according to their respective investment objective and in line with their investment policy – solely in the interest of the fund shareholders.
A UCITS management company is authorized in the European Union under the undertakings for collective investment in transferable securities (UCITS) directive to engage in the management of UCITS and other collective investment schemes in the form of unit trusts, common contractual funds, investment companies or any combination thereof.
The European SICAV (société d'investissement à capital variable) – "investment company with variable capital" – is similar to a US mutual fund (open-end fund). The SICAF (société d'investissement à capital fixe) – "investment company with fixed capital" – is similar to a US closed-end fund.
