LICs (Listed Investment Companies) and LITs (Listed Investment Trusts) are managed investment products listed on a stock exchange. Investors can buy and sell them like regular shares, which have contributed to the rise in popularity in recent years. Both are similar in many ways, but there are several important differences which you should consider.
A Listed Investment Trust is essentially an entity that manages a portfolio of investments, consisting of equities and fixed income, which are reflected as a unit price to investors. A LIT is designed to provide either capital growth or dividend income. Listed Investment Trusts, along with Listed Investment Companies, are defined as investment vehicles.
On the other hand, a LIC is a company that is listed on the stock market. The company invests it’s assets in a variety of different investments like stocks, bonds, property, alternatives and others. How the company invests will be defined by its publicly available investment mandate. When you buy shares in a LIC, you are investing in that company and its ability to manage your assets to generate a positive return. Shares can be bought and sold just like any other listed company on the ASX or other stock exchange.
Comparing the two, a LIT is a trust, so any investment will provide you with units, whereas a LIC is a company, so if you choose to invest, you will receive shares in the LIC, opposed to the underlying assets directly. LICs can issue dividends determined by the company’s board each financial year vs. a LIT which must pass on all earnings to unitholders each year. Management fees and costs are typically higher in a LIC due to the labour-intensive process of investing and trying to outperform the market. LITs are passive investments and do not require tactical changes, so they usually have lower fees.
