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Investing in LICs and LITs

Learn more about the features, risk and benefits of investing in Listed Investment Companies (LICs) and Listed Investment Trusts (LITs). 

 

What are LICs and LITs?

Listed investment companies (LICs) and listed Investment trusts (LITs) provide exposure to a basket of underlying securities, often shares, although increasingly there are funds providing exposure to other asset classes, such as fixed income. 

Investors’ cash is pooled in a managed fund and a professional investment manager selects the fund’s securities and invests it. Listed on ASX, you buy and sell shares in LICs and LITs through your broker.

Like any investment, LICs and LITs have risks you need to understand. You should seek independent advice from a professional adviser before investing.

 

Listed investment companies (LICs) and Listed investment trusts (LITs)

LICs and LITs are close-ended, which means they generally do not issue new shares or units , or cancel shares or units.

There are some important differences between them, particularly from a tax perspective which are important to understand before investing. 

LICs are incorporated as public companies. As companies:

  • Any profit derived from the investing activities of the LIC is taxed at the company rate before dividends are paid.
  • The directors choose the level of dividend. To pay investors a predictable income, they may pay out more than the underlying income levels through a return of capital or retain surplus from the company’s after tax profit.
  • They have the ability to pay franked dividends. 

LITs are established as trusts. As trusts:

  • All net income and realised capital gains must be distributed on a pre-tax basis to investors and the end investor pays any tax.
  • The distributions paid by the trust carry the franking levels allocated by the underlying investments.
Benefits and risks

LICs and LITs provide exposure to a professionally managed, diversified portfolio of securities, asset classes or market sectors in one transaction.

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Types

LICs and LITs are available in a broad range of asset classes and investment styles.

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