What is the Investment Company Institute?

The Investment Company Institute (ICI) is the association of players in the investment industry in the United States. It was organized with the mission of promoting high ethical standards among investment companies in order to gain public trust and confidence, thus, helping to encourage investing. It also seeks to give members of the public a good grasp of fund management and the ways they can invest their money in financial products or investment funds that can yield interests or dividends for their money. The Investment Company Institute, likewise, aims to promote the interests of directors, stockholders and investment counselors of investment houses as well as the investment funds themselves.

The Institute was created in 1940 and originally was known as the National Committee of Investment Companies. It was renamed in 1941 as the National Association of Investment Companies and again in 1961 as the Investment Company Institute. Members of the Institute come from investment groups or companies registered with the U.S. Securities and Exchange Commission. They are in the business of selling mutual funds, closed-end funds, exchange-traded funds and unit investment trusts.

Financial institutions dealing with mutual funds pool together the investments of individuals and corporations or other forms of organizations for investment by professional fund managers in profitable financial securities such as shares of selected stocks and bonds. Investments in mutual funds earn money through interest on bonds and dividends on stocks. The earnings also might come from proceeds in the sale of shares in the mutual fund at a time when the value of the shares in the mutual fund, called the net asset value, is higher than its value when it was acquired. When fund managers decide to sell securities owned by the mutual fund at a higher price, the earnings are called capital gains and are shared with the investors by most funds. Earnings in mutual funds are distributed to investors periodically.

Closed-end funds, similar to mutual funds, are collective investment schemes, but the shares available for sale are limited and exclusively offered to investors with huge portfolios. Shares in this type of fund are traded in the stock market and are valued differently from mutual funds and other types of financial securities. The value of shares in closed-end funds depend not only on the net asset value of the fund but also on the premium or discount given by the market on the stock being traded. A premium is placed on a stock when the stock price is greater than the real value of the company’s assets and, conversely, the stock is said to be discounted if the market prices the stock lower than the real worth of the company’s assets. There are no regular payouts for closed-end funds investors, and payouts come only upon liquidation of the fund.

Like mutual funds, exchange-traded funds also are collective investment schemes that allow investing in a group of stocks and other form of securities. These funds are, however, traded on stock exchanges like stocks. Most exchange-traded funds track an index that is used to gauge the performance of an investment or the stock market itself. Investors make money with this type of investment by selling their shares in times when their price goes up as indicated by the index. Some exchange-traded funds dish out earnings through distribution.

Unit investment trusts are investment firms that offer to investors a fixed and unmanaged selection of securities normally composed of stocks and bonds. They are packaged as investment units that can be cashed in after a specific period of time when the trust terminates. A unit represents a part of the entire portfolio that investors can fully own. It can be purchased through a public offering made by a person called a sponsor. Investors earn from unit investment trusts either through capital appreciation, through dividend income or both.

Membership in the Investment Company Institute also is open to unit investment trust sponsors who will be entitled to a seat in the Institute’s Unit Investment Trust Committee. The Institute does not take in accounting and law firms, consultants and other service providers to the industry. Entities not eligible for membership to the Institute may, however, gain access to its memorandums and statistical reports through subscription so that they can be updated on industry trends and activities.