A Listed Investment Company (LIC) is a company listed on ASX that holds a portfolio of investments.
A Listed Investment Company (LIC) is a company listed on ASX that holds a portfolio of investments.
An investment company listed on ASX
A Listed Investment Company (LIC) is a company listed on ASX that holds a portfolio of investments. The investments are managed by the company’s investment management team on behalf of all shareholders.
Investors may buy and sell shares in the Listed Investment Company via their stockbroker on ASX.
The Listed Investment Company generates income from its investment portfolio and may distribute some or all of this to its own shareholders as dividends. In addition, as the Company’s investment portfolio rises or falls in value, the asset backing of each share will rise or fall.
The price at which listed investment company shares trade
The price at which listed investment company shares trade is determined in the open market by buyers and sellers. Buyers and sellers agree on a price that reflects the underlying net asset value of the company, any other perceived influences on value and the effect of supply and demand of the company’s shares on the day of trade.
As a consequence the market price of a share may be higher, the same as, or lower than the net asset backing of the share. As with the purchase or sale of any listed share, the potential to buy or sell a share at variable prices creates an additional dimension of opportunity and risk that should be appreciated by an investor.
An after-company-tax investment
Listed investment companies pay tax on their taxable income at company tax rates. When a listed investment company pays a franked dividend from its after-tax profit, shareholders receive a tax (franking) credit for the company tax that has already been paid on that profit.
CGT Discount
Where a listed investment company generates an eligible capital gain on its investment portfolio and distributes the after-company tax gain to shareholders as a franked dividend, an individual or superannuation fund shareholder will be entitled to a tax deduction equivalent to the CGT discount that would be attributable to that capital gain.
Eligible capital gains consist of realized capital gains generated by the listed investment company on their investment portfolio that would have been eligible for the CGT discount had the gain been generated by an individual or superannuation fund taxpayer.
The allowable tax deduction amounts to 50% (for an individual shareholder) or 33.3% (for a superannuation fund shareholder) of that part of the gross franked dividend that is applicable to the eligible capital gain.
A listed investment company’s fixed capital may contribute to cost efficiency
Listed investment companies generally have a fixed capital. This means that when investors buy or sell a listed investment company’s shares between themselves on ASX, the listed investment company’s capital and investment assets are unchanged.
This structure seeks to avoid the administration and transactional costs associated with the repeated buying and selling of investment assets that unlisted managed funds or ETFs must necessarily undertake to accommodate net investor deposits and fund net investor withdrawals.
Listed investment companies will only make changes to their capital on certain occasions. They may raise capital through a structured share issue or dividend reinvestment plan and may reduce their capital through a share buy-back or capital return.
A listed investment company’s fixed capital can assist longer term investment strategies
A listed investment company’s fixed capital structure allows an investment company to utilize longer time-horizon investment strategies or assets, while still providing shareholders with the ability to increase or decrease their investment at any time by buying or selling their shares on ASX.