What are the Functions of Investment Companies?

Investment companies exist to generate profits for investors. The functions of investment companies include the selection of potentially profitable investment vehicles and financial reporting for customers. Investors choose to invest with such companies because of their expertise and profitable track records.

Overview

The main goal of investment companies is to generate profits for investors. When individuals or companies invest funds, they do so with the understanding of the risks and potential involved. Investment companies generally require that individuals invest only risk capital and not funds necessary for meeting basic needs. 

Investing Funds

Investment companies are usually involved in the investment of mutual funds or individual stocks or other vehicles. By being involved in the day-to-day managing of funds and observing market patterns, investment companies have greater market knowledge than the average investor. People trust in the expertise of fund managers to invest their funds in potentially profitable markets.

Risk Tolerance

Before collecting funds from investors, investment companies typically assess risk tolerance. For example, an individual might want to take greater risks with hopes of gaining greater profits. Other investors might be more conservative, authorizing allocation of only a small percentage of their funds to more risky markets. This determination is generally made at the outset and agreements are put in writing.

Financial Reporting

Most investment companies issue monthly or quarterly reports of profits and losses. An investor receives detailed accounting of how funds were invested and whether the investment is in a profitable or losing position. Some reports also contain graphs and charts to clarify detailed information.