Find out more about split capital investment companies. Investment companies can invest in a much wider range of investments than other types of fund. In fact, they can invest in almost anything. The investment company will set out its particular approach in its investment policy. Some investment companies are what are called a 'fund of funds' — they only invest in other investment companies, which means they take advantage of another layer of investing expertise the fund managers in those investment companies.
This can give good results, but the disadvantage is that you may be exposed to additional layers of operating costs and gearing. The different investment companies suit different investment purposes. For example, you might put some core money in a large globally invested company, and add spice by investing a little extra with a smaller specialist company.
Each company has a fund manager who makes the day to day decisions about what stocks and other investments to buy and sell.
Most investment companies are managed by an external management group which may manage a number of companies. The board of directors select the fund manager or managers.
Companies that have no management group involvement are called 'self-managed'. This means the board of directors selects and employs a salaried fund manager or managers directly.
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How investment companies work The Association of Investment Companies AIC was founded in to represent the interests of the investment trust industry — the oldest form of collective investment. In terms of the beginning investor, the mutual fund fees are actually an advantage relative to the commissions on stocks. The reason for this is that the fees are the same, regardless of the amount you invest. The term for this is called dollar cost averaging DCA , and it can be a great way to start investing. Diversification is considered to be the only free lunch in investing.
In a nutshell, by investing in a range of assets, you reduce the risk of one investment's performance severely hurting the return of your overall investment. You could think of it as financial jargon for "don't put all of your eggs in one basket. In terms of diversification, the greatest amount of difficulty in doing this will come from investments in stocks. As mentioned earlier, the costs of investing in a large number of stocks could be detrimental to the portfolio.
This will increase your risk. It is possible to invest if you are just starting out with a small amount of money. It's more complicated than just selecting the right investment a feat that is difficult enough in itself and you have to be aware of the restrictions that you face as a new investor. You'll have to do your homework to find the minimum deposit requirements and then compare the commissions to other brokers. Chances are, you won't be able to cost-effectively buy individual stocks and still be diversified with a small amount of money.
You will also need to make a choice on which broker you would like to open an account with.
Personal Finance. Your Practice. Popular Courses. Login Newsletters. Table of Contents Expand. What Kind of Investor Are You? Online Brokers. Investing Through Your Employer. Minimums to Open an Account. Commissions and Fees. Mutual Fund Loads Fees. Diversify and Reduce Risks. The Bottom Line. Your Money. Personal Finance. Your Practice. Popular Courses. Login Newsletters.
Investing Investing Essentials. What Is an Investment Company? An investment company is also known as "fund company" or "fund sponsor. Key Takeaways An investment company is a corporation or trust engaged in the business of investing pooled capital into financial securities.
Compare Investment Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Related Terms Fund Company Fund company is a commonly used term to describe a corporation or trust who invests the pooled capital of investors in financial securities.
Investment Company Act of Created by Congress, Investment Company Act of regulates the organization of investment companies and their product offerings issued.