Which of the following is included as an investment company under the Investment Company Act of 1940?

• A. Unit Investment Trust
• B. Broker-dealer
• C. Insurance company
• D. Bank

Answer: (A)

The Investment Company Act of 1940 defines an investment company as an entity that pools investors’ money and issues redeemable securities to fund a portfolio. A unit investment trust fits this structure because a sponsor creates a fixed portfolio of securities and sells units representing a pro rata interest in that trust to investors. The portfolio is fixed for the life of the trust, and the trust has a defined termination date, with investors redeeming their units at a value tied to the trust’s assets. This pooling of funds and issuance of redeemable units makes it an investment company under the Act, even though it isn’t actively managed like a mutual fund.

Broker-dealers, insurance companies, and banks don’t meet that definition. A broker-dealer is a firm that buys and sells securities for clients, not a vehicle that pools investor funds into a redeemable security. An insurance company is focused on underwriting risk and issuing insurance products, not functioning as an investment company under the Act. A bank is a depository institution and likewise isn’t categorized as an investment company under this statute.