Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 219

Investors face new choices in listed vehicles

The market capitalisation of listed investment companies (LICs) and listed investment trusts (LITs) on the ASX reached almost $35 billion in July 2017, up 12% from the previous year. What is driving the interest and what are the fundamental differences between these structures?

LICs and LITs popularity boost

While LICs have traded on the ASX for nearly 100 years, it is only relatively recently that a wide range of investors have taken advantage of their benefits, spurred on by regulatory changes and market conditions.

One of the key factors driving the increased interest was the introduction of the Future of Financial Advice (FoFA) legislation in 2013. FoFA abolished the generous upfront trail and soft commission structures that had, until then, been enjoyed by advisers who recommended their clients into managed fund products. This directly resulted in an uplift in appetite from investment managers, financial advisers and investors in using LICs.

The number of LICs listed on the ASX now exceeds 100, double that of five years ago. While many people are familiar with LICs, LITs are less well known and less common in the Australian market.

So, what is the difference between LICs and LITs and what does it mean for investors?

LICs and LITs give exposure to a broad range of assets in one transaction. Both are traded on the ASX, which is appealing to a lot of self-directed and SMSF trustees.

Unlike a managed fund, however, their assets are held in a closed pool, which means they usually don’t issue new shares or cancel existing shares as investors join or leave. If investors want to exit, they have to sell their shares (or units) on the stock exchange. They can’t be redeemed.

Differences between LITs and LICs

The biggest difference between LICs and LITs lies in the way they are structured. A LIC is a company, which pays dividends to investors, whereas LITs are incorporated as trusts and must pay out any surplus income to investors in the form of distributions.

Some of the fundamental differences include:

Tax transparency

A LIC treats the dividends from underlying investments and capital gains as income on its profit and loss statement. The LIC then deducts operating costs to derive a profit before tax figure. This is then taxed at the company rate before dividends are paid.

By contrast, a LIT more closely represents an unlisted managed fund in that all net income and realised capital gains must be distributed on a pre-tax basis, and the end investor pays any taxation.

Capital gains tax treatment

A major advantage of the way LITs are taxed is most individual investors will be eligible for discounted capital gains tax concessions applicable to investments held for more than 12 months.

Corporate entities are generally not eligible for this discount, although some LICs may qualify for a concession from the Australian Tax Office to pass on this benefit to shareholders.

Ability to pass through income can lead to predictable returns

A LIT may also provide the manager with more flexibility in paying distributions, allowing them to pay out more than the underlying income levels, through a return of capital. This can be useful when the manager wants to pay out a set portion of the fund each year, to give investors a predictable income stream.

By comparison, a LIC is limited by its ability to pay dividends, requiring the accumulation of retained profits before a dividend can be paid.

With an ageing demographic of investors who will be increasingly focused on income, it is likely that more LITs will come to the market as more investors grow to understand the structure of these products and realise their advantages.

Whether investors choose to invest in a LIC or a LIT, or both, it is highly likely the growth of the market is set to continue.

 

Andrew Lockhart is a Managing Partner at Metrics Credit Partners (MCP), an Australian debt-specialist fund manager. MCP is offering investors exposure to the corporate loan market through the MCP Master Income Trust, which will list on the ASX soon. This article is general information and does not consider the circumstances of any investor.

 

RELATED ARTICLES

Why LICs are closing and more should follow

Are LICs licked?

Is now the time to invest in small caps?

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.