Listed Investment Companies compared with Managed Fund Unit Trusts

Listed Investment Companies (LIC) and Managed Funds pool together money to allow investors to obtain a broad exposure to various assets classes. An investor in these vehicles has exposure via their ownership of shares in the case of the LIC and units trusts in the case of the managed fund. In summary key differences are outlined below:

LICManaged Funds
Company structure Trust structure
Listed on the ASX Unlisted
Buy and sell on the ASX Apply to fund directly to buy or sell units in the trust
Trade plus 2 days settlement on the ASX Depends on the withdrawal conditions contained in the fund PDS
Pays a dividend, usually fully franked Pays a trust distribution which may contain various tax treatments including fully franked dividends
Closed end structure where the number of shares on issue is determined by the Board. Given the shares on issue do not vary greatly the share price is determined by demand against the relatively fixed supply of shares. In this context the shares may trade at a discount or premium to the underlying value of the fund per share Unit price is close to underling value of the portfolio per unit
Fund flows do not impact investment process and investment decisions as level of funds are relatively constant given the closed end nature of the fund Open ended structure where the fund manager needs to purchase and sell holdings in response to the flow of funds in and out the fund
Depends on the LIC but usually lower cost Depends on the fund but usually higher direct and indirect manager fees
Returns are after tax paid, usually as fully franked dividends Returns are distributed untaxed, as a result the investor may inherit unknown tax consequences