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The Financial Planning Center Comprehensive Financial Planning
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Investment Company Act of 1940 |
This section covers mutual fund education designed to help beginners and professionals alike. There are many aspects of mutual funds an investor should understand before a mutual fund purchase is made.
The Investment Company Act of 1940 is legislation passed by the U.S. Congress dealing with the regulation of investment companies--closed-end investment companies, open-end mutual funds, and unit investment trusts. Among other provisions, the act required that these funds register with the Securities and Exchange Commission (SEC), and the act set standards in such areas as promotion, reporting requirements to investors, the pricing of their securities, and the allocation of funds across investments.
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Costs you Wont Find in a Prospectus How an Investment in a Mutual Fund Makes Money Investment Company Act of 1940
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Section 6. Investment Company Act of 1940.
The Public Utility Holding Company Act of 1935 required Congress to direct the SEC to study the activities of investment companies and investment advisers. The study results were sent to Congress in a series of reports filed in 1938,1939, and 1940, causing the creation of the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The legislation was supported by both the Commission and the industry. Activities of companies engaged primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public, are subject to certain statutory prohibitions and to Commission regulation under this act. Also, public offerings of investment company securities must be registered under the Securities Act of 1933. Investors must understand, however, that the Commission does not supervise the investment activities of these companies and that regulation by the Commission does not imply safety of investment. In addition to the registration requirement for such companies, the law requires they disclose their financial condition and investment policies to provide investors complete information about their activities. This act also:
Other provisions of this act involve advisory fees, not conforming to an adviser's fiduciary duty, sales and repurchases of securities issued by investment companies, exchange offers, and other activities of investment companies, including special provisions for periodic payment plans and face-amount certificate companies. Regarding reorganization plans of investment companies, the Commission is authorized to institute court proceedings to prohibit plans that do not appear to be fair and equitable to security holders. The Commission may also institute court action to remove management officials who have engaged in personal misconduct constitution a breach of fiduciary duty.
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