A listed investment company (LIC) is an

Australian Australian(s) may refer to: Australia * Australia, a country * Australians, citizens of the Commonwealth of Australia ** European Australians ** Anglo-Celtic Australians, Australians descended principally from British colonists ** Aboriginal A ...

'' closed-end'' collective investment scheme similar to

investment trust An investment trust is a form of investment fund found mostly in the United Kingdom and Japan. Investment trusts are constituted as public limited companies and are therefore closed ended since the fund managers cannot redeem or create shares. ...

s in the UK and

closed-end fund A closed-end fund (CEF) is a fund that raises capital by issuing a fixed number of shares which are not redeemable, and then invest that capital in financial assets such as stocks and bonds. Unlike open-end funds, new shares in a closed-end fund ...

s in the United States. Instead of regularly issuing new shares or canceling shares as investors join and leave the fund, investors buy and sell to each other on the

ASX Australian Securities Exchange Ltd or ASX, is an Australian public company that operates Australia's primary securities exchange, the Australian Securities Exchange (sometimes referred to outside of Australia as, or confused within Australia as ...

. They are traded like other securities on the Australian

stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for th ...

Advantages

* Listed Investment Companies are a closed end investment, meaning that management do not have to worry about people withdrawing funds. If people wish to exit the investment they can simply sell their shares, without affecting the amount of funds under management. This allows for management to take a more long term approach to investing if deemed favourable (Viney, 2007). * Traditional LICs employ this

buy and hold Buy and hold, also called position trading, is an investment strategy whereby an investor buys financial assets or non-financial assets such as real estate, to hold them long term, with the goal of realizing price appreciation, despite volatilit ...

strategy which can result in tax advantages (for example Australia's system of paying capital gains tax on only half of capital gains if an asset is held for 12 months). This strategy also amounts to lower costs for LICs and traditionally lower fees. However, contemporary LICs often take a more active approach to portfolio management (Ross, 2007). * LICs provide a lot of

diversification Diversification may refer to: Biology and agriculture * Genetic divergence, emergence of subpopulations that have accumulated independent genetic changes * Agricultural diversification involves the re-allocation of some of a farm's resources to ...

for investors, while often targeting specific markets, such as international equities, Indian equities, or Chinese property (Viney, 2007). * LICs must comply with transparency and governance

regulation Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. For ...

imposed by the

Australian Securities Exchange Australian Securities Exchange Ltd or ASX, is an Australian public company that operates Australia's primary securities exchange, the Australian Securities Exchange (sometimes referred to outside of Australia as, or confused within Australia as ...

(Ross, 2007).

Disadvantages

* Owners of shares in listed companies must ride out the volatility of the share price which can divert from net tangible assets per share as the market digests related news. (Shapiro, 2006) * Dividends from LICs are paid out as management see fit (as opposed to mandatory distribution of all surplus funds as in unlisted managed funds. (Ross, 2007)

References

* Viney, C. (2007). Financial institutions, instruments and markets (5th ed.). North Ryde, NSW, Australia: McGraw-Hill Irwin Australia Pty Ltd. * Shapiro. (2006). Multinational financial management (8th edn ed.). Hoboken, New Jersey, United States: John Wiley & Sons. * Ross, S. T. (2007). Fundamentals of Corporate Finance (4 ed.). Sydney, NSW, Australia: Mcgraw-Hill Irwin.
Australian Stock Exchange site
- Australian LICs Exchange-traded products Investment funds {{Australia-company-stub

See also

Advantages

Disadvantages

References