Livewire has acquired Market Index, the country’s leader in free stock market data.
Find out why.

The key differences between LICs, unlisted managed funds and ETFs

Daryl Wilson

Affluence Funds Management

It's fair to say there are a lot of similarities between popular investment products like LICs, unlisted managed funds and ETFs. But each have unique characteristics which can make them more or less suited to specific types of investors. 

How do you know which is right for you? It helps to break down the similarities and differences between these investment products.

General features

LICs, unlisted managed funds and ETFs have variations in the way they are structured and even how ownership works for investors. For example, while your investment in unlisted managed funds and ETFs means you hold 'units' in a managed pool of investments, your investment in a LIC means you own shares in a company structure.


LICs Unlisted Managed Funds ETFs
Listed on the ASX Yes No Yes
Legal entity Company (sometimes Trust eg REITs) Trust Trust
Typical investment strategy Active Active Passive
Minimum entity size Set by ASX Unrestricted Set by ASX
What does an investor own? Shares Units Units
Liquidity Mostly liquid - smaller are less liquid. Varies Fully liquid

Costs

Some types of investment products can require high minimum investments or only be accessible to certain types of investors, like institutions or wholesale investors. Pricing can also vary based on a range of factors.


LICs Unlisted Managed Funds ETFs
Minimum investment Set by broker. Usually $500 or less. Varies. Usually $10,000 or more Set by broker. Usually $500 or less.
Pricing Set by market forces Based on value of underlying investments +/- transaction costs Value of underlying values +/- a margin
Management fees Between ETFs and managed funds. Can include performance fees. Higher than LICs and ETFs. Can include performance fees. Typically lower than LICs and managed funds. Usually doesn't include performance fees.
Buy/sell spreads Difference between sell and bid prices. Variable based on market and liquidity. Set by manager Managed by market markers to be within pre-set limits and approximate to asset values.
Transaction costs Broker costs Buy/sell spread set by manager Broker costs

Tax and income

For certain investors, understanding the tax implications of their investments can be crucial. LICs, ETFs and unlisted managed funds typically don't pay tax on behalf of investors and capital gains tax may be applicable. Where they differ is in the payment of dividends (LICs) compared to distributions (ETFs and unlisted managed funds).


LICs Unlisted Managed Funds ETFs
Investor income LICs pay dividends which may include franking credits. LITs pay distributions. Pay distributions which may include franking and other credits. Pay distributions which may include franking and other credits.
Income tax LICs pay tax on income and may attach franking credits. LIT distributions are pre-tax. Distribution returns are pre-tax. Distribution returns are pre-tax.
Capital gains tax Tax paid on capital gains. Franking credits may be attached to dividends. Do not pay tax but distribute capital gains to investors who in turn pay tax on it. Do not pay tax but distribute capital gains to investors who in turn pay tax on it.

Considering investing in LICs

LICs can offer a valuable and diverse access point to the market and allow investors access to the skill and expertise of fund managers. If it's an investment product that might be suitable for you, you may want to check out our previous guides.

Education
Why this 100-year-old investment structure still has a role in your portfolio
Education
How to buy a LIC at the right price

This information is an extract from Affluence Funds Management guide to LICs. You can request a copy via our website


3 topics

Daryl Wilson
CEO/Portfolio Manager
Affluence Funds Management

Daryl has over 25 years’ experience in finance and investing. He formed Affluence to provide investors with regular income and long-term capital growth by investing with some of the best fund managers available in Australia.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.