A Guide to Listed Investment Companies (LICs)

What is a listed investment company?

Listed investment companies are similar to managed funds. They differentiate in terms of how they operate and are run. Listed investment companies use the Australian Stock Exchange to invest a number of shares. Listed investment companies are “close ended”. This means that they are not involved in issuing new shares or cancelling existing ones as investors are not locked in all the time. Their close-ended nature means they are more focused on the bigger picture goal rather than short-term goals. Investors can purchase or even sell shares in a Listed Investment Company via the Australian Securities Exchange.

Listed investment companies have a manager who can either be external or internal. The role of the manager is to manage the company’s investments. They are also responsible for setting any objectives and guidelines for investments. Further, each listed investment company will set their own goals so that their performance can be compared to the stock market index. Additionally, it is very common for these managers to set goals in order to perform better than the stock market index.

What are the different types?

  • Specialist funds: for investing in specific sectors or having assets such as technology companies, mining etc.
  • Private equity funds: for investing in domestic and international companies
  • International shares funds: investing in listed shares overseas
  • Australian shares funds: investing in listed Australian shares

What are the benefits of investing in a LIC?

The benefits of investing in a listed investment company are high. Firstly, they are a lower cost option making them financially viable. Secondly, their fees are lower than those of a managed fund. Thirdly, there are a number of different investment techniques you can use according to your own discretion. Finally, listed investment companies do have dividends which is always easier to reinvest through these companies too. As mentioned before, their close-ended nature means that these companies are more focused on longer-term performance goals rather than worrying about the nitty picky details.

What are the disadvantages of investing in a LIC?

With anything there will always be negative impacts of investing in a listed investment company. Firstly, these investments are better for their long-term impact rather than any shorter goals you may have. Secondly, these investments do reflect the changes in the stock market at the time. So if the stock market is going down, so will the investments made in the listed investment company. Overall, these disadvantages solely revolve around the impact the stock market has on the company.

How do you invest?

So, how do you actually put your foot forward and invest in a listed investment company? Before looking at investing, it is best that you speak to an investment lawyer. They can help you decide which pathway is the best option for you and your needs. Once you’ve spoken to a lawyer, you can speak to a broker or go through an online share trader. After this, you can buy and sell shares on the Australian Stock Exchange. For more information on how to buy and sell shares, click here.

Concluding thoughts

Thus, listed investment companies are a low-cost method of investing shares through the Australian Stock Exchange. There are a number of benefits and disadvantages to using a listed investment company, however ultimately it is something worth looking into.

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