There are hundreds of Listed Investment Companies (LICs) in the Australian Stock Exchange (ASX). With its boom in recent years, fund managers are bringing new products to the market, many of whom are launching new LICs through initial public offerings (IPOs). Below is a simple guide about LICs and all there is to know about them.

What Is A Listed Investment Company?

A Listed investment company asx is a company on the share market that invests in other companies to grow their share portfolio. Through them, investors can get a team that can actively manage their money. This closed-end collective investment scheme is similar to closed-end funds in the United States.

To put it simply, LIC investors buy and sell stocks to each other on the ASX. The value of the LIC is reflected in the company’s successful investment strategies.

Like many other companies, LICs are overseen by boards of Directors. Their investing activities are carried out by investment managers appointed by the directors, although they are usually externally managed; that is, the investment manager is usually from an external company appointed under a contract.

Advantages and Disadvantages of investing in a LIC

Like any other type of investment, Listed investment company asx has advantages and disadvantages.

Advantages

• LICs are closed-end investments, so management does not have to worry about people withdrawing funds. Those who wish to exit the investment may do so by selling their shares without affecting the funds under management.
  
• Traditional LICs employ a buy and hold strategy. This results in tax advantages and lower costs for LICs, as well as lower fees. 
  
• LICs provide diversification for investors while targeting specific markets such as international equities or properties.

Disadvantages

• Owners of LIC shares can’t withdraw funds. They must ride out the share price volatility, which can affect the net tangible assets per share.
  
• LIC dividends are paid out at the management’s discretion instead of the mandatory distribution of all surplus funds.

Buying Shares

Before investing, it is important to research and understand what you are investing in.

Like ordinary shares, investors can buy or sell LICs on the ASX through a broker or online share trader. Listed investment company asx has low minimum investments as they can be bought and sold daily on the ASX. With the help of the broker or online share trader, you can invest in a LIC for as little as $500.

When buying, there are factors to consider, such as the historical performance of the LIC, the size, underlying assets, portfolio concentration, and investor confidence and market performance.

LICs also have their investment strategies that define the asset class they invest in, such as Australian shares. It also includes the return target that the LIC aims to achieve and the timeframe for such targets and investment limits that they adhere to, such as maximum level cash holdings and investments outside Australia.

Upon looking at the quality of the LIC, investors can determine whether or not they would like to own the stocks. Before putting money down, investors must also consider whether the asset class of the LIC invests in is cheap, reasonably valued, or expensive. For expensive assets, investors must be patient since they will have to wait until there is more value before considering the LIC.

Conclusion

Like ordinary stocks, investors looking into Listed Investment Company ASX should do their homework properly before buying. Consider quality LICs with proven managers and good performance in the past. Research about how a LIC can fit into your portfolio and how it will fit your investment goals.