indirect investment

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The purchase of securities that represent claims on other underlying securities. An indirect investment can be undertaken by purchasing the shares of an investment company. An investment company sells shares in itself to raise funds to purchase a portfolio of securities. The motivation for doing this is that the pooling of funds allows advantage to be taken of diversification and of savings in transaction costs. Many investment companies operate in line with a stated policy objective, for example on the types of securities that will be purchased and the nature of the fund management. See also mutual fund.

Subjects: Economics.

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