Listed investment companies (LICs)

Invest in the investor

Listed investment companies (LICs) and listed investment trusts (LITs) are a way of getting exposure to a broader range of assets in a single transaction.

The underlying assets can vary between funds so make sure you understand how the company or trust is investing your money.

What are listed investment companies?

LICs are a type of investment, incorporated as companies and listed on a stock exchange, usually the Australian Securities Exchange (ASX). Many LICs operate in a similar way to a managed fund. They have an external or internal manager who is responsible for selecting and managing the company's investments. You'll need to try to assess the expertise and experience of the investment manager before you invest.

LICs are 'closed-ended' which means they usually don't issue new shares or cancel existing shares as investors join and leave. This allows the manager to focus on selecting investments without having to worry about cash flow. If investors want to exit, they have to sell their shares on the relevant stock exchange, they cannot redeem the investment.

As LICs are companies, dividends paid to investors may have attached franking credits.

Listed investment trusts

LITs are also closed-ended funds, meaning investors buy and sell existing units on stock exchange, such as the ASX. LITs, however, are incorporated as trusts, rather than companies.

LITs must pay out any surplus income to investors in the form of trust distributions. These distributions are received by investors in the same way they were received by the trust from the underlying investments. Franking levels may vary depending on the income distributed from the underlying assets.

Underlying investments

Traditionally LICs and LITs invested in either Australian or international shares depending on the fund. Newer funds though offer exposure to a much broader range of underlying assets which will suit different types of investors.

LICs and LITs can be classified into four broad categories, based on their investment style:

  • Australian shares funds - that invest mostly in listed Australian shares
  • International shares funds - that invest mostly in shares listed on overseas stock exchanges
  • Private equity funds - that invest in unlisted companies, either here or overseas
  • Specialist funds - that invest in special assets or particular sectors such as wineries, technology companies, infrastructure or property

The investment approach of each fund will be different, ranging from conservative to aggressive. Aggressive funds can have higher returns but they can also be much higher risk. Some of the riskier strategies funds may use include short selling, leverage and derivatives. You could lose some or all your money if the strategies don't work.

This type of investment is usually medium to long term (5 years or more), because of the potential for volatility of the underlying assets. Consider whether the fund's structure, investing style and underlying portfolio suits your needs and objectives before you invest.

How to buy and sell LICs

LICs and LITs usually trade at either a discount or premium to their net tangible asset backing. Net tangible assets refer to a company's physical assets less its liabilities.

This means the price of a share may be trading at more or less than the value of the underlying assets per share. Long established funds with a history of good investment management often trade at a premium, while newer funds are more likely to trade at a discount.

LICs and LITs are bought and sold on the ASX, through a broker or online trading account just as you would buy or sell an ordinary share.


The manager will be paid fees which may include:

  • a management fee (commonly around 1 - 1.5% of net assets)
  • a performance fee (commonly  15-20% of any returns over a specified benchmark)

Some funds have management fees lower than this and some don't charge a performance fee, however, management fees are payable regardless of how well the fund performs. The performance fee may even be payable if the fund has a negative return, as long as the return is better than that of the benchmark.

There are many different types of LICs and LITs, varying in risk and complexity. Seek financial advice if you are not sure if this type of investment is right for you.

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Last updated: 03 Jul 2017