Technical Terms



The companies that do specialized investing on your behalf are called LIC; Listed Investment Companies. The name implies that they are listed on the ASX and that they invest and their structure is as a company. The manager of the company may be internal or part of a organization that offers expertise to several such companies. I prefer internal managers as they perform a much more hands-on approach to managing.

Investors in an LIC, invest through the share market and invest by selling and buying shares in the company to each other. They are traded as all shares are traded. There is another way to invest in these companies and that is to buy units in the company. Buying the units means that you have exposure to the companies' performance. Unit trusts are offered by the company and investors may choose to buy units in the trust offered. There may be taxation benefits that should be looked into before you decide to buy units or to purchase the shares.

Investing with an LIC will be a consideration to investors for the following reasons

1) A diversified portfolio through a single investment.

Investors get access to and exposure to a wide ranging group of shares without having to pay entry and exit fees on all the shares. Only one set of fees apply on the shares and that is for buying into the LIC and selling out of the LIC. However, the overall fees for internal managed investments can be a significant factor in your choice of which LIC to invest with. These should be calculated into your decisions.

2) Returns from both capital appreciation and income.

As the company becomes more valuable in its capital base and its assets appreciate, its value goes up. Then as the values of the shares they have purchased in their investment strategy go up, your investment goes up. You actually get two increases in value, an effective "double-whammy" approach.

3) A tax managed investment with relative consistency in returns.

Associated tax requirements within the investment holding period are handled and payed by the LIC. As such, there is a consistent return to the investor, as tax is both paid and claimed throughout the life of the investment, by the LIC.

4) Concentrated exposure to a specific investment sector.

As certain sectors outperform others, the investor will find the LIC concentrating its efforts on the better performing sectors and be able to secure higher returns than the average.

Find the right LIC that suits your risk profile and investment needs. Do your research and collect information on the products that best suit your needs. All LIC's will offer documentation with detailed information on their product and will gladly mail it to you. Understand what you are paying for, what fees are involved and possible taxation strategies that may reduce your overall costs.