Listed investment company
Encyclopedia
A listed investment company (LIC) is an Australian closed-end
collective investment scheme
similar to investment trust
s in the UK.
They are traded as other securities on the Australian stock market
.
Closed-end fund
A closed-end fund is a collective investment scheme with a limited number of shares. It is called a closed-end fund because new shares are rarely issued once the fund has launched, and because shares are not normally redeemable for cash or securities until the fund liquidates.Typically an...
collective investment scheme
Collective investment scheme
A collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
similar to investment trust
Investment trust
An Investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies....
s in the UK.
They are traded as other securities on the Australian stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
.
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 favorable (Viney, 2007).
- Traditional LICs employ this buy and holdBuy and holdBuy and hold is a long-term investment strategy based on the view that in the long run financial markets give a good rate of return despite periods of volatility or decline. This viewpoint also holds that short-term market timing, i.e...
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 diversificationDiversification (finance)In finance, diversification means reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk of its constituent assets, and often less risk than the least risky of...
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 regulationRegulationRegulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
imposed by the Australian Securities ExchangeAustralian Securities ExchangeThe Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....
(Ross, 2007).
Disadvantages
- Owners of shares in listed companies must ride out the volatilityVolatility (finance)In finance, volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices...
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 surpus funds as in unlisted managed funds)(Ross, 2007).