Closed End Investment Company

Investing in the financial markets can be financially rewarding if sometimes very risky. One of the bigger frustrations in this area for ordinary investors is how difficult it can be to become part of a diversified large investment picture and move away from 'nickel-and-dime' trading. The closed end investment company is one possible way to overcome the limitations imposed on you by the relatively small amount of investment capital in your pocket! An investment company essentially operates to utilise the collective capital of its investors in market investments such as equities. They operate in one of two ways, closed or open-ended. In the case of the closed-end investment company, it is formed with a strictly limited number of shares offered to the public. It may be formed with a specific ‘wind-down’ date and it is not obliged to issue new shares at any time.

The closed-end investment company will use its initial capital to purchase and manage a portfolio of holdings of investments. This value of this portfolio may be less or greater than the value of the holding company itself. The company will share this portfolio through paying various forms of dividends accordingly as profits are made. Investors can buy and sell shares in the company on the various markets and for this reason this is sometimes called a public traded fund. The advantages of this are clear. The small investor can obtain a part of a professional fund and a professional fund manager. In terms of start-up it is possible that a minimum purchase stake is required but the smaller investor can subsequently participate in buying and selling fund shares as they think fit.

Investment Trust Company Basics

• There are various forms of such organisations (such as open-ended or mutual investment funds) that offer different risk/reward profiles to potential investors;
• Buying a stake in any form of floating company (i.e. stocks and shares where their value may go down as well as up) is risky. You could suffer serious financial losses if you get it wrong;
• Investment in a funds management company can offer large rewards if things go well, but choosing the right one is important. Understanding their track record in fund management against market averages, and having an awareness of risk mitigation is also key;
• This is one of the most specialised and complicated areas of investment. In the case of a manufacturing company an investor can usually see how the company is performing with a glance at the profit and loss and balance sheet - this is much harder in the case of an investment trust company. Taking specialist advice and guidance from a financially astute company before you invest may be a very sensible idea;