Investment companies (also known as Investment firms) are a type of fund or partnership that collects money from shareholders and invests it to multiply investment money.
Investment firms are basically business entities. They can be either private or public, and their main task is to hold and manage securities for investment purposes. They also offer investors a variety of other services such as portfolio management, record-keeping, legal, custodial, and tax management services.
They have several features that make them unique, we will be exploring them today.
Firms have a close-ended structure. This means that they issue a fixed number of shares at a certain time. Because of this structure, fund managers usually invest in assets that less liquid, such as venture capital, private equity, and commercial properties. This ensures long term results.
Stock Exchange Listed
Investment firms must be listed on the stock exchange to be operating legitimately
Board of Directors
All firms have an independent board of directors. Their responsibility is to protect the interest of the investor.
You become a shareholder when you buy a share in a company. The shareholder receives certain rights after buying stocks. These rights are exercised if and when the need arises.
All shareholder participate in annual general meetings, also known as AGM. They also can change or select the board of directors, motion extraordinary general meetings, and motion tables.
Discounts and premiums
Investment companies express the value of shares in two ways. Since an investment company buys and sells shares on a stock market, the share price is affected by supply and demand. Meaning, the shares price might be higher or lower than the NAV depending on the market. This difference value is known as a discount or premium.
Multiple Share Classes
Depending on the business model of the firms, they can either issue ordinary shares, meaning the shareholder’s money earns dividends over an extended period. Or if it is a split capital investment company, they can issue multiple classes of shares, meaning fund managers can invest the money in various instruments to generate an income.
The board of directors selects fund managers. The fund managers decide the daily workings of the funds. As well as deciding what to sell and what to buy.
Interestingly, fund managers are often a part of the external management group. They are only hired to function within a certain management firm but are not exclusive to that firm.
companies can invest in almost anything, which cannot be said for other types of funds. Investment companies can specialize in the following:
- Companies from specific countries
- Particular business sectors, for example, technology.
- Mainstream global companies.
- A particular type of company, like smaller companies.