Both trade on the ASX and both hold a diversified portfolio, but their structures are different in ways that matter. Here is how they compare.
Listed investment companies and exchange traded funds are two of the most common ways Australians buy a diversified bundle of shares in a single ASX trade. They can look similar from the outside, but they are built differently under the hood, and those structural differences shape how their prices behave and how they pay income. Understanding the distinction helps you read what you are actually buying.
According to the ASX, a LIC is a company that is closed-ended. It issues a fixed number of shares, usually at an initial public offering, and does not routinely create new shares or cancel them as investors come and go. You buy and sell LIC shares on the market just like any other listed share, settling two business days after the trade.
Most ETFs work the other way. They are open-ended, meaning units can be created or redeemed by market participants as demand changes. That mechanism is what keeps an ETF's traded price close to the value of the assets it holds. The Moneysmart ETF guide is a useful primer on how exchange traded funds are put together.
This is the most important practical consequence of the closed-ended structure. Because a LIC's share price is set by buyers and sellers in the market, it can be higher, lower or the same as the underlying value of its portfolio. That underlying value per share is called the net tangible assets, or NTA. When the share price sits above NTA, the LIC is said to trade at a premium; when it sits below, it trades at a discount. The ASX notes that supply and demand drive this: more sellers than buyers can push a LIC to a discount, while strong buying can lift it to a premium. LICs formally report their NTA within 14 days of month-end, which gives investors a reference point.
For ETFs, the creation and redemption process generally keeps the price close to net asset value, so you are less likely to pay a meaningful premium or buy at a steep discount. This is one reason many investors find ETFs simpler to think about.
| Feature | LIC | ETF (typical) |
|---|---|---|
| Legal structure | Company | Usually a trust |
| Open or closed | Closed-ended (fixed shares) | Open-ended (units created and redeemed) |
| Price vs underlying value | Can trade at a premium or discount to NTA | Generally tracks net asset value |
| Income | Dividends set by directors, can be smoothed, often franked | Distributions passed through each year |
| Traded on | ASX | ASX |
Because a LIC is a company, its directors decide the dividend. They can hold back some profit in reserves during strong years and use it to support dividends in leaner years. That ability to smooth income, often with franking credits attached, is a feature some income-focused investors value. The trade-off is that the dividend is a board decision rather than a direct pass-through of what the portfolio earned.
ETFs are usually structured as trusts, which generally must distribute the income they receive to unit holders each year. That means distributions tend to move up and down with the underlying income rather than being smoothed, though they too can carry franking and capital gains components. If you want a refresher on how Australian dividends are taxed, our franking credits explainer walks through it.
There is no universal winner here, and this article is educational rather than a recommendation of any particular product. Many investors gravitate to ETFs for their simplicity and the way their price tracks underlying value, especially low-cost index options. Others appreciate a LIC's potential for steady, franked income and the way a closed-ended structure lets the manager focus on the long term without having to buy or sell to meet daily inflows and outflows. The closed-ended structure cuts both ways: it avoids forced trading, but it also opens the door to discounts that can persist. The sensible approach is to read the product's disclosure documents, check the fees, and look at how its price has tracked NTA over time before deciding. Our ETFs vs managed funds guide and index investing for beginners are good next reads.
Disclaimer: This article explains the difference between LICs and ETFs in general, educational terms and is not financial product advice or a recommendation to buy any specific investment. Investing carries risk, including the risk of loss. Read the relevant disclosure documents and consider advice from a licensed financial adviser. See the ASX and Moneysmart for more.