Listed Investment Companies (LIC) – What Are they?

By Jason Fittler

Normally when we speak about investing in the share market we all think about buying individual shares, the likes of BHP, ANZ, Woolworths etc come to mind.

The truth is that there are many ways to invest into the share market, one of my favorites is through a LIC. But what is it?

A LIC is a company which invests in shares, much the same as managed funds, the core differences are;

1. A LIC is a company where as a Managed Fund is a trust.
2. A LIC normally pays out all the income earned while a Managed Fund will only pay part.
3. A LIC is listed on the stock exchange, so they are cheap and simple to get into and out of. Where as a managed fund is not.

There are many LIC’s listed on the share market, each of which will offer you a different investment experience. The benefits of a LIC over ordinary shares are;

1. Diversification, you have exposure to a number of different shares by purchasing just one. This is great when you do not have a lot of money to invest.
2. International Exposure – some LIC invest directly in International shares, this allows you to obtain exposure to international shares at a low cost.
3. Discounts – in poor markets LIC’s can trade at a discount to their net assets. Keeping in mind that the assets are shares, this means that are effectively buying the shares cheaper through the LIC than you can by buying them on market.
4. Premiums – at times the LIC will trade at a premium to the net assets, which means that you can sell the shares for more through the LIC than you could on market. Giving you a better return than holding the share direct.

LIC’s are good long term investments and in a Bear market are good buying, if you only have a small amount to invest or want a hassle free share portfolio then a LIC could be for you.

PS. Need more information on LIC? Give us a call at ABN AMRO Morgans Townsville, 07 4771 4577 we are always ready to listen, explain and help.