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Australia LICs and LITs Guide

the listed investment companies and the listed investment trusts in Australia. The guide covers: the LIC structure (the "listed investment company") — the LIC is the "company" listed on the ASX that invests in the "portfolio of the shares, the bonds or the other assets"; the investor buys the "LIC shares" on the ASX and receives the "dividends" (the "franked or the unfranked") from the LIC; the LIC can retain the capital gains (the "profit from the sale of the underlying investments") and pay the "tax at the company rate" (the "25% or 30%") — the retained profits are reflected in the "share price" and the investor may pay the "CGT" on the sale of the LIC shares; the LIC may also distribute the "franking credits" to the shareholders when the LIC pays the "dividend" from the retained earnings; the LIT structure (the "listed investment trust") — the LIT is the "trust" listed on the ASX that invests in the "portfolio of the assets"; the investor buys the "LIT units" and receives the "distributions" (the "income and the capital gains") from the trust; the LIT must distribute the "net income" to the unitholders each year (the "no tax at the trust level" — the "the beneficiaries pay the tax on the distributions"); the LIT provides the "full flow-through of the franking credits" (the "franking credits from the underlying Australian shares flow to the unitholder"); the premium and the discount to the NTA (the "net tangible assets") — the LIC or the LIT may trade at the "premium" (the "market price above the NTA per share") or the "discount" (the "market price below the NTA per share"); the investor should compare the "market price" to the "NTA per share" (the "underlying portfolio value divided by the number of the shares or the units") — the discount may represent the "buying opportunity" and the premium may indicate the "overvaluation".

Popular LICs and LITs on the ASX

  • Australian equity LICs: The major LICs include: the "AFIC" (the "Australian Foundation Investment Company" — the "over 60 years of the history" — the "S&P/ASX 200 focused"), the "ARG" (the "Argo Investments" — the "large cap Australian shares"), the "MLT" (the "Milton Corporation" — the "income-focused"), the "WHF" (the "Whitefield Industrials" — the "industrial shares"). The LICs typically charge the "management fee of 0.10% to 0.25% per annum" — the "lower than the typical managed fund".
  • International equity LICs: The LICs with the global focus include: the "MIR" (the "Mirrabooka Investments" — the "Australian small caps"), the "BKI" (the "BKI Investment Company" — the "Australian shares"). The international LICs include the "TGG" (the "Templeton Global Growth Fund" — the "global equities") and the "WAX" (the "WAM Global" — the "global equities with the active management").
  • LITs for the property and the infrastructure: The LITs include the property trusts (the "REITs — the Real Estate Investment Trusts" — the "SCG, the GMG, the GPT, the DXS, the CHC") and the infrastructure trusts (the "AST — the AusNet Services"). The LITs distribute the "rental income" and the "capital gains" to the unitholders.

For the CGT on the LIC and the LIT shares, see our Capital Gains Tax Guide →.

LIC vs ETF Comparison

  • Tax differences: The LIC can retain the capital gains and pay the tax internally — the investor defers the CGT until the sale of the LIC shares. The ETF must distribute the net income and the capital gains to the unitholders annually — the investor pays the tax on the distributions each year even if the investor does not sell the ETF units.
  • Franking credits: The LIC can pay the "franked dividends" from the retained earnings — the premium over the NTA may be recovered through the franking credits. The LIT flows through the franking credits from the underlying investments. The ETF also flows through the franking credits from the underlying ASX shares.
  • Fees and the transparency: The LIC management fees are typically "0.10% to 0.40%" (the "lower than the average managed fund"). The ETF fees are "0.04% to 0.80%" (the "passive ETFs at the lower end, the thematic and the active ETFs at the higher end"). The LIC portfolio holdings are disclosed "quarterly" (the "60-day lag") while the ETF holdings are disclosed "daily" on the ASX.

For the ETF investing strategies and the tax treatment, see our ETFs Guide →.