1.3.1 Investment Companies

This set of vocabulary flashcards covers the historical context, regulation, and various categories of investment companies as defined by the Investment Company Act of $$1940$$.

Investment companies

Financial institutions that invest customers' money on their behalf.

Mutual fund

A type of investment company where investors pool their money with others, which is then invested by financial professionals according to the fund's strategy.

Investment Company Act of $1940$

A law that defined investment companies, set operational rules for these firms, and established three specific categories of investment companies.

Management companies

Investment companies that manage customers' money, which include open-end management companies (mutual funds) and closed-end management companies (closed-end funds).

Open-end management companies

Commonly known as mutual funds, these are structures designed to invest in a portfolio of securities to earn returns for shareholders.

Closed-end management companies

Also called closed-end funds, these are one of the two structures of management companies designed to invest in a portfolio of securities.

Unit investment trusts (UITs)

Investment companies that invest customers' money in fixed portfolios of securities that are not actively managed.

Face amount certificates

A rarely used category of investment company historically designed to grow to a specific amount to help borrowers repay mortgage principal in a single lump sum.

Amortize

The characteristic of modern mortgages where monthly payments include both interest and principal.