Mutual Funds Vs. Investment Companies
Investors have a wide variety of investments to choose from. There are individual stocks and bonds, mutual funds, exchange traded funds -- ETFs -- commodities and real estate investment trusts, to name a few. Types of investments and financial terms can be confusing and misunderstood by non-professionals. Two related terms misinterpreted are mutual fund and investment company.
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Definition of Investment Company
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Investment companies organize mutual funds and invest in companies that will, hopefully, be profitable. An investment company is defined in the Investment Act of 1940, "...engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities..." In other words, the companies hold securities in other companies only for investment purposes. Investments are usually equities, preferred stocks and different types of bonds and fixed income vehicles. Many investment companies are publicly-held corporations. The business of these companies is to collect money from investors and buy securities with the funds.
Definition of Mutual Fund
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A mutual fund combines resources from investors and buys stocks, bonds or other securities. The collection of securities is a mutual fund's portfolio. Each investor owns shares in the mutual fund. The number of shares owned depends on the amount of money invested in the fund. The investment company organizes, administers and manages the mutual fund.
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Mutual Fund Ownership
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Mutual fund share ownership has nothing to do with investment company ownership. An investment company offers a variety of mutual funds to investors. An investor purchases shares in one or more mutual funds offered by the financial firm. The firm may offer domestic stock funds, international stock funds, bond funds, a money market fund and balanced funds -- offering a combination of stocks, bonds and cash. The investor's shareholder rights correspond only to the particular mutual fund or funds in which the shares were purchased.
Investment Company Ownership
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Investors can buy stock directly in an investment company if it is publicly held and traded. Many investment companies are private firms. Others are owned by larger financial institutions. Some of the largest independent mutual fund companies in the United States are The Vanguard Group, Franklin Templeton Investments, Fidelity Investments and the American Funds. An investor who owns shares of a mutual fund has no ownership rights to the firm owning and managing the mutual fund.
Public Versus Private Investment Companies
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Some of the largest mutual fund firms are publicly held. They include: Franklin Templeton Investments, T. Rowe Price Group Inc., State Street Corporation, Legg Mason Inc. and BlackRock Inc. Mutual fund companies known to many investors that are privately held include: The Vanguard Group, American Funds and Fidelity Investments. Many large financial institutions offer mutual funds and other investments, including Bank of America, JPMorgan Chase and Goldman Sachs.
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