Investment Company Categories — Q&A

A financial institution that invests its customers’ money on their behalf. Mutual funds are one type of investment company.

The Investment Company Act of 1940. Investment companies existed since the 1920s but were not formally defined until this law.

Management companies, unit investment trusts (UITs), and face amount certificates.

No. Open-end and closed-end are both sub-types of management companies — one of the three top-level categories. The three categories are management companies, UITs, and face amount certificates.

Management companies actively manage customers’ money. UITs typically hold a fixed, unmanaged portfolio of securities.

Open-end management companies (mutual funds) and closed-end management companies (closed-end funds). Both seek returns by holding a portfolio of investments.

Banks required borrowers to make ongoing payments into certificates designed to grow to the mortgage principal lump sum. Modern mortgages amortize principal over time, so face amount certificates are largely non-existent.

That they are one of the three investment company categories — little more is usually tested.