How to Compare Investment Companies?

An investment company (or investment fund) pools money from many investors into one investment vehicle. The goal is to benefit from the management of a professional investment adviser and lower management fees. Investment companies come in three basic types: closed-end, open-end and unit investment trusts (UITs). All are monitored and regulated by the U.S. Securities and Exchange Commission. When comparing investment companies, use the SEC to help steer your investigation.

  1. Use the SEC’s Mutual Fund Cost Calculator when comparing the options and expenses of different investment funds.
  2. Compare investment companies’ net asset value. This is equivalent to earnings per share calculation for mutual funds. It is the price per share of the investment company.
  3. Request and study a prospectus for any fund or company you are thinking about investing in. It will give details about investing in the fund, fund performance and any relevant information about the next investment offering.
  4. Compare investment company options. These can be found in the prospectus. Look for funds that are redeemable, with no deferred sales loads or redemption fees. Consider no-load funds as well, which don’t charge the fee you pay with load funds.
  5. Match your needs with the objective of the fund. There are index, stock, bond, money market, foreign-exchange market and commodity funds, among others. They all have different risk profiles, fees and margin requirements. (The latter refers to the amount of money you have to put down to secure contractual ownership.)
  6. Compare 12b-1 fees. These are management fees. Also look for any fees associated with buying or selling shares.

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