INVESTMENT AND FINANCING COMPANIES

INVESTMENT COMPANIES

Public corporation organized to invest in large blocks of securities of diverse firms, and
to obtain its capital from issues of shares or units.

 An investment company is a company whose main business is holding securities of

other companies purely for investment purposes. The investment company invests
money on behalf of its shareholders who in turn share in the profits and losses.
 Investment companies give a small investor the advantage of a full
time professional investment management, and a very much wider spread of risk that it
would have been otherwise possible. They are divided into three major types:

(1) Open-end funds (also called mutual funds) which have a floating number of issued
shares, and sell or redeem their shares at their current net asset value (NAV);
(2) Closed-end funds (also called investment trusts) which can sell only a fixed number
of shares which are traded on stock exchanges, usually at a discount to their net asset
value; and
(3) Unit investment trusts (also called unit trusts) which sell their redeemable securities
(called units) which represent interests in the securities held by the trust in its investment
portfolio.

FINANCING COMPANIES

 Finance company, specialized financial institution that supplies credit for the purchase of
consumer goods and services by purchasing the time-sales contracts of merchants or by
granting small loans directly to consumers.
 Specialized consumer finance agencies now operate throughout western Europe,
Canada, the United States, Australia, Japan, and some Latin American countries.
Although they existed in the early 1900s, their greatest development came after World
War II
 Large-sales finance companies, which operate by purchasing unpaid customer accounts
at a discount from merchants and collecting payments due from consumers, were a
response to the need for installment financing for the purchase of automobiles in the
early 1900s.

Ally Financial, for example, was established as the General Motors Acceptance Corporation
(GMAC) in 1919 to purchase automobile accounts receivable from car dealers who were
themselves unable to finance time purchases. Many companies in both Europe and
the United States continue to specialize in financing purchases of particular commodities
and remain closely associated with specific manufacturers. Some also extend credit for
wholesale purchases by retail dealers.

 Many finance companies in Great Britain, Australia, and the Netherlands, for example,
have become closely affiliated with commercial banks because of the banks’ role as
capital subscribers. In other cases, commercial banks play an important role in their
extension of credit to finance companies.