Sunday, December 6, 2009

investments companies

Investments companies are financial intermediaries that collect funds from individual investors and invest those funds in a potentially wide range of securities or those assets. Pooling assets is the key idea behind investment companies. Each investor has claim to the portfolio established by the investment company in proportion to the amount invested. These companies thus provide a mechanism for small investors to ' team up" to obtain the benefits of large-scale investing.
Investment companies perform several important functions for their investors:
1- Record keeping and administration. Investment companies issue periodic status reports, keeping track of capital gains distributions, dividend, investments, and redemption, and they may reinvest dividend and interest income for shareholders.
2- diversification and divisibility. By pooling their money, investment companies enable investors to hold fractional shares of many different securities. They can act as large investors even if any individual shareholder cannot.
3- professional management. Many, but not all, investment companies have full-time staffs of security analysts and portfolio managers who attempt to achieve superior investment results for their investors.
4- lower transactions costs. Because they trade large blocks of securities, investment companies can achieve substantial savings on brokerage fees and commissions.
While all investment companies pool assets of individual investors, they also need to divide claims to those assets among investors. Investors buy shares in investment companies, and ownerships proportional to the number of shares purchased. The value of each share is called the net asset value, or NAV. net asset value equals assets minus liabilities expressed on per-share basis

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