search Menu menu Home Education and resources  We use cookies to help improve your online experience. By using this site, you agree that we may store and access cookies on your device. You can change your cookie settings at any time.  Education and resources Unclear about our product features? Struggling with financial jargon? Let us help.  WHAT IS AN INVESTMENT COMPANY? WHAT MAKES INVESTMENT COMPANIES DIFFERENT What is an Investment Company? As its name suggests, an investment company is simply a company that makes its profits by investing. It may invest in the shares of other companies plus a range of other assets such as property and bonds. By buying shares in an investment company, you're entitled to share in any rise in its share price or any dividends it chooses to pay out. In this way, investment companies can give investors of any size a ready-made and professionally managed portfolio of investments. How they are structured Listed investment companies are public limited companies or PLCs. Their shares are traded on a stock market such as the London Stock Exchange. They are required to publish regular information about their activities and their financial position. And because they are listed on a stock exchange, you can check their latest share price at any time. Like any public limited company, an investment company must have an independent board of directors appointed by its shareholders to oversee its activities and decide its future direction. How they invest Every investment company has a stated investment objective. This can range from generating long-term capital growth by investing in emerging markets to delivering a regular income by investing in UK shares, or equities. The board of the investment company employs a professional investment management team to make day-to-day investment decisions. The investment management team will put together a portfolio which could comprise anything from 50 to 500 or more different holdings. The investment team has to report regularly to the board and shareholders on their progress. What makes investment companies different The public company structure makes investment companies a bit different from other types of investment fund such as unit trusts or OEICs. Here are some important differences to know about: They can take a really long-term view Unit trusts and OEICs are open-ended funds that create or cancel units/shares as investors look to buy into or sell out of the fund. Investment companies, on the other hand, are closed-ended: they issue a fixed number of shares that investors can buy or sell on the stock market. Because they don't have investor money flowing in and out unpredictably, investment companies have a lot of control. They can take a very long-term view of their investment portfolio and don't have to hold lots of cash to pay investors back their money. This is why they are often considered a good vehicle for less 'liquid' investments that can take time to sell, including property, emerging markets and shares in small and private companies They have an independent board Like all public companies, investment companies are required to have a board of directors to ensure they are being run in the best interests of their shareholders. The board even has the power to replace the investment management team if performance isn't considered up to scratch. They may borrow money to boost returns Just as other companies can get loans to expand their business, so investment companies can borrow money to invest alongside the capital provided by shareholders. This 'gearing' can potentially increase returns when investments are rising in value. But it can magnify losses when markets fall – so needs to be managed carefully. They have income flexibility Other investment funds have to pay out all the income generated by their investment portfolio each year. Investment trusts can hold back up to 15% of their income to pay out in future years. This can allow them to smooth out their income payments from year to year. In fact, there are over 20 investment trusts that have increased their annual income dividend to shareholders for 20 years or more in a row (source: The Association of Investment Companies, March 2019). Their share price is driven by investor demand Because an investment company has a fixed rather than variable number of shares in issue, its share price is driven by investor demand. The performance of the underlying investment portfolio will have a big influence. But unlike a unit trust or OEIC, the share price won't track its underlying portfolio precisely. Instead shares can be at a discount (lower than) or at a premium to (higher than) their net asset value depending on the level of investor demand for shares. The benefits of being a shareholder By investing in an investment company, you become a shareholder in the company. This means you have the right to: Receive any dividends being paid out: investment companies will look to pay out at least some of their investment profits and income as an annual dividend to shareholders. The dividend can vary and there's no guarantee that one will be paid – but many companies aim to maintain or grow their dividend each year. Attend and vote at annual general meetings*: you can vote on issues such as the appointment of directors, the company's investment objective and board remuneration and tabled motions to be discussed. If you can't attend the AGM, you can vote by proxy (if your chosen investment service allows this). Receive the annual report*: the annual report provides a wealth of information about an investment company, its investment strategy, holdings and financial position over the past year. Companies also provide a shorter interim report every six months. Oversight from an independent board: part from a few self-managed companies, most investment companies have a board of directors, independent of the investment manager, to ensure the company is being in run in your best interests. *If you are investing through an online investment platform, check if these shareholder rights will be passed on to you. Many investment companies now publish their annual report online. Frequently asked questions  Investment Companies  Investing for children  ISAs  What the words mean  Risk warning The value of investments and the income from them can go down as well as up and you may get back less than the amount invested. Please refer to the relevant Key Information Document (KID) prior to making an investment decision. Please be aware of scams that can affect investors. © abrdn Read the detailed risk warning Legal Notice Cookie policy Privacy Security Legal and regulatory information Accessibility Contact us NMPI Status The company currently conducts its affairs so that securities issued by Aberdeen Latin American Income Fund Limited can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream pooled investment products (NMPIs) and intends to continue to do so for the foreseeable future. The Company’s securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because the company would qualify as an investment trust if the company were based in the UK. Pre-investment Disclosure Document (PIDD) abrdn Capital International Limited (a non-EU alternative investment fund manager), as manager of the Company (a non-EU AIF), is not generally subject to the EU Alternative Investment Fund Manager Directive (“AIFMD”) other than in circumstances where the Company is being marketed into the European Union. As the Company is marketed into the European Union, AIFMD requires that non-EU managers make available to investors certain information prior to such investors’ investment in the Company. Read the PIDD for Aberdeen Latin American Income Fund Aberdeen Asset Managers Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. The information contained in this website does not constitute an offer of, or an invitation to apply for securities in any jurisdiction where such an offer or invitation is unlawful, or in which the person making such an offer is not qualified to do so. Aberdeen Asset Managers accepts no responsibility for the content of any external web sites. ABERDEEN ASSET MANAGERS LIMITED: 10 Queens Terrace, Aberdeen, Aberdeenshire, AB10 1XL Company No. SC108419