Which statement best defines an Investment Company?

• A. A corporation or trust through which people invest in professionally managed portfolios of securities by pooling their funds with other investors.
• B. A bank that issues certificates of deposit to customers.
• C. An entity that only manages a single client's portfolio.
• D. A broker-dealer firm that trades securities on behalf of clients.

Answer: (A)

An investment company is an entity that pools money from many investors to invest in a diversified portfolio of securities, with professional management. This definition captures the essence of why such organizations exist: they combine funds to access diversified, professionally run portfolios like mutual funds, unit investment trusts, or closed-end funds.

Why this statement fits best: it directly describes pooling funds from multiple investors to obtain a managed portfolio, which is exactly what investment companies do.

Why the other descriptions don’t fit: a bank that issues certificates of deposit is a depository institution, not an investment company. An entity that manages only one client’s portfolio is an investment adviser or wealth manager, not an investment company. A broker-dealer that trades securities for clients is a broker-dealer, handling transactions rather than pooling funds into a shared, professionally managed portfolio.