The material set forth in this section and the variable contracts section will comprise 26% of your upcoming examination. Since this is the most heavily tested topic on your exam, ensure you are comfortable with all topics. Refer to weblinks located throughout the sections should you need to review the basics.

Investment Companies
An investment company is a corporation or a trust through which individuals invest in diversified, professionally managed portfolios of securities by pooling their funds with those of other investors. Rather than purchasing combinations of individual stocks and bonds for his or her portfolio, an investor can purchase securities indirectly through a package product like a mutual fund.

According to the Investment Company Institute, there are over 8,100 mutual funds (excluding funds of funds, or mutual funds made up of other mutual funds), 254 closed-end funds, 226 exchange-traded funds and 37 UITs.. 91.2 million people owned mutual funds  with nearly $8.6 trillion invested in these investment vehicles alone. With so many different products to choose from, it is easy to see why FINRA requires you to master the fundamentals of investment company function, management, regulation and operation.

There are three fundamental types of investment companies: unit investment trusts (UITs), face amount certificate companies and managed investment companies. In the following section we discuss each investment company type in more detail. Remember that all three types have the following things in common:

  • An undivided interest in the fund proportional to the number of shares held
  • Diversification in a large number of securities
  • Professional management
  • Specific investment objectives


Unit Investment Trust (UIT)

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