James Chen, CMT is an expert trader, investment adviser, and global market strategist.
Updated June 12, 2022 Reviewed by Reviewed by Chip StapletonChip Stapleton is a Series 7 and Series 66 license holder, CFA Level 1 exam holder, and currently holds a Life, Accident, and Health License in Indiana. He has 8 years experience in finance, from financial planning and wealth management to corporate finance and FP&A.
A management investment company is a type of investment company that manages publicly issued fund shares.
Management investment companies can manage both open-end funds and closed-end funds.
A management investment company manages capital for clients through pooled funds. U.S. investment market legislation has classified investment companies into three categories under the Investment Company Act of 1940. Section Four of the 1940 Act breaks down the classification of companies as:
Section Five of the 1940 Act provides further details on management investment companies. Management investment companies can be either open-end or closed-end companies. Section Five of the 1940 Act also further outlines these companies by diversified and non-diversified companies.
Management investment companies issue shares of funds from pooled investment. Investors buy shares of funds that incur sales commission charges as well as operational expenses. Funds management investment companies manage must comply with U.S. securities regulations. Regulations support fair market activities, investor education, and transparency.
The funds managed by management investment companies trade on exchanges or through open-end management companies and are known as publicly traded investments. Management investment companies offer investors publicly traded pooled fund investments in a broad range of standard and complex investment strategies.
Within the management investment company universe, the largest investment companies in the U.S. include BlackRock, Vanguard, State Street Global Advisors, Fidelity, and Bank of New York Mellon Investment Management.
Open-end management investment companies manage open-end funds. They can be offered as either a mutual fund or exchange-traded fund (ETF). Open-end funds do not have a designated number of shares available for trading. The management investment company can issue and redeem shares of open-end mutual funds and ETFs at their discretion.
Open-end mutual funds are known to offer a range of share classes. Open-end management investment companies structure share classes with different fees that investors must pay when transacting with an intermediary. Open-end mutual funds do not trade on a market exchange; they're transacted through the mutual fund company. Transactions are processed at the fund’s next reported net asset value, also known as the forward price.
Exchange-traded funds are traded daily on exchanges. Exchange-traded funds can trade at a discount or premium to their NAV. They may also trade at par value. Management investment company authorized participants actively monitor ETF prices and exchange trading with the ability to create and redeem shares at their discretion to manage the price of an ETF.
Closed-end management investment companies manage closed-end funds. They offer a specific number of shares to the market in an initial public offering. Closed-end management investment companies do not create or redeem shares following the public offering. Closed-end funds trade daily on exchanges. They are known to trade at a discount or premium to their NAV.
In addition to discussing open-end and closed-end management investment companies, Section Five of the 1940 Act also explains diversified and non-diversified management investment companies. Diversified management investment companies have assets that fall within the 75-5-10 rule.
A 75-5-10 diversified management investment company will have 75% of its assets in other issuers and cash, no more than 5% of assets in any one company, and no more than 10% ownership of any company's outstanding voting stock. Any management investment company not falling within the 75-5-10 rule is considered a non-diversified management investment company.