Regulated Investment Company - Explained
What is a Regulated Investment Company?
Written by J. Mance Gordon
Updated at April 20th, 2024
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What is a Regulated Investment Company?
Regulated investment companies are companies that are regulated by the Securities and Exchange Commission (SEC) and the Investment Company Act of 1940 and have the primary business purpose of investing the assets of owners.
Any company including mutual fund or exchange-traded fund, real estate investment trust, or unit investment trust who issue security and are engaged in the security business may qualify as a regulated investment company if they meet certain requirements.
What is Required to be a Regulated Investment Company?
In order to qualify as a regulated investment company, the company needs to register itself as an investment company with the Securities and Exchange Commission under the Investments Company Act of 1940.
Only the registered investment companies meeting certain criteria are eligible to qualify as a regulated investment company. The companies that earn at least 90% of its income from capital gains, interest or dividends derived from investment are considered to be qualified as a regulated investment company. These companies are also obliged to distribute at least 90% of its net investment income to its shareholders as interests, dividends or capital gains.
The Internal Revenue Service may collect an excise tax from the company if they fail to distribute at least 90% of its net investment income. Also, to qualify as a regulated investment company a company must have a minimum of 50% of its asset in form of cash, cash equivalents, or securities. The regulated investment companies are not allowed to invest more than its 25% of its total assets in securities offered by a single issuer other than the government and regulated investment companies.