Investment companies are financial institutions whose primary purpose is to manage and hold securities. They are regulated by the U.S. Securities and Exchange Commission (SEC). In addition, investment companies must register under the Investment Company Act of 1940. This Act defines the basic business of an investment company. The SEC requires that all investment companies comply with certain laws and regulations, including registering to do business in the U.S.
Investment companies invest in different types of securities. Mutual funds, closed-end funds, and unit investment trusts are common examples. These funds invest in a combination of debt and equity. The investments in these types of funds are traded on the stock market. Shareholders who want to sell their shares sell them to other investors on a secondary market. The price at which an investor sells their shares depends on market forces and market participants.
Most investment companies are managed by an external group. A board of directors selects the fund manager, who makes decisions on what stocks and investments to buy and sell. As the economy slows, the role of investment companies is important. Individual investors tend to withdraw from the market when it shows signs of a recession. This can result in them making investment decisions that are counterproductive to their own interests. Also, many investors have an urge to sell at lower prices rather than wait for the price to rise.
Investment companies can invest in many types of assets, including hard-to-sell assets and private companies. They can also invest in infrastructure and property. These types of investments require a long-term strategy and are considered more risky.