Listed Investment Companies (LICs) provide investors with exposure to a professionally managed and diversified portfolio of assets. These assets may include Australian shares, international shares, private equity, fixed income securities, and property, with some funds offering packaged strategies.

LICs run a basket of such investments. They buy the investments, list the company to the value of that basket and investors buy into their company. Investing in an LIC is just like buying shares: they are listed on the sharemarket and the ASX CHESS sub-register, and investors have full control over their purchase or sale.

They may also be a lower cost alternative to managed funds, which are not listed on the ASX.

Many LICs manage the investment portfolio to minimise tax and produce regular income through fully franked dividends which can assist in providing investors with stable returns. For LICs with a dividend reinvestment plan, investors can choose to increase their investment exposure rather than receiving cash.

Because LICs have a company tax structure, returns are generally ‘after tax’, whereas unlisted managed funds pay untaxed returns. They are also closed-end vehicles, meaning they do not regularly issue new shares or cancel shares as investors join and leave the fund. This allows the fund manager to concentrate on investment selection without having to factor in the possibility of money coming into or out of the fund.

Why consider listed investment companies

• Typically achieve lower operating costs compared to managed funds.
• Provide investors with exposure to a diversified portfolio of assets through a single security.
• Professional investment managers manage your investments for you.
• Regular dividends that are in most cases fully franked as well as the opportunity for capital appreciation over the long-term.
• Can invest in particular areas or assets, like international shares or a specific sector.
• Easy access and settlement through the ASX, and confidence that the LIC is subject to ASX rules.
• As tax is paid at the company tax rates, investors may be able to receive a tax refund on the difference between the company and their own tax rates.
• Because many LICs use a medium to long-term ‘buy and hold’ strategy, there may be special tax treatments on the sale of investments, which can be passed on to investors.

Specific risks relating to LICs include manager risk and the usual market risk. For more details on usual market and investment risks please refer to our Financial Services Guide.