Listed investment companies

Listed investment companies are listed managed funds where the investor owns shares in the company that holds the investment portfolio, rather than units in a fund of the underlying asset.

The main reasons investors buy LICs are for: capital growth, dividend income and professional management.

LICs differ from other investments in a few ways:

• LICs are closed-end vehicles - LICs don’t regularly issue new shares or cancel shares as investors join and leave the fund. Instead, investors buy and sell to each other on an exchange such as the ASX. This means a LIC typically operates with a fixed pool of capital, allowing the manager to concentrate on investment selection without having to factor in the possibility of money leaving the fund unexpectedly.
• Operate under a company structure - LICs operate under a company structure as opposed to a unit trust structure. They usually distribute their income by way of fully franked dividends on which the company tax rate is already paid.
• Can trade at a discount or premium to net tangible assets (NTA) - LICs may deviate away from their NTA for a number of reasons including market conditions, their size, dividends, corporate governance, fee structure and supply and demand.