DEFINITION of 'Fund Company'

Fund company is a commonly used term to describe an investment company, which is a corporation or trust engaged in the business of investing the pooled capital of investors in financial securities. This is most often done either through a closed-end fund or an open-end fund (conventional mutual fund). Fund companies can also offer ETFs, and other vehicles called separate accounts and CITs. In the U.S., most fund companies are registered and regulated by the Securities and Exchange Commission under the Investment Company Act of 1940.

Also known as an "open-end fund company."

BREAKING DOWN 'Fund Company'

Fund companies are business entities, both privately and publicly owned, that manage, sell and market closed-end and open-end funds to the public. They typically offer a variety of funds to investors, which include portfolio management, and occasionally custodial services. Not all fund companies custody their own assets. They may work with another institution who custodies the assets and communicate performance value to the custodian after the fund company's fund accountants have struck the NAV for each of the mutual funds at the close of each day.

Fund companies employ teams of portfolio managers, analysts, fund accountants, compliance and risk monitoring personnel, and many other individuals who are in charge of managing the investment strategies that are offered by the fund company. The strategies might be active or passive. An active strategy involves picking and investing in specific stocks that are expected to outperform the overall market. A passive strategy purchases a pre-set basket of stocks that are a part of an index or a sector, such as the S&P 500 Index or the Health Care sector.

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