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.
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)
InvestingLearn about the advantages of investing in mutual funds rather than individual stocks, including the benefits of affordability, oversight and diversification.
Managing WealthFind out why you should include balanced funds in your portfolio, including the importance of customizability, diversification and professional management.
Financial AdvisorWhat to really look for when you're deciding on a mutual fund.
InvestingLearn how to buy mutual funds online; discover which websites offer mutual fund trading services, how to choose a fund and typical fees.
Financial AdvisorLearn five of the "secrets" about mutual funds that can have a significant impact on mutual fund choices and investor profitability.
InvestingThere is money to be made in mutual funds, but investors fall into several pitfalls that keep them from maximizing their profits. Read these tips to take the uncertainty out of investing in mutual ...
Financial AdvisorMutual funds are the starting point for many individual investors because they offer a balanced portfolio in a single investment. Find out how mutual funds work and whether they are the investment ...
InvestingFind out why trading mutual funds for a living isn't your best bet, including how funds discourage short-term trading and which options may better serve you.