LICs that have provided unsatisfactory returns and trading at substantial discounts to NTA have been under scrutiny recently, and in many cases the scrutiny has been more than justified.
Structured as companies, LICs can provide a range of benefits. The ability to retain earnings over financial years allows LICs to build profit reserves from which it can pay a sustainable stream of dividends. LICs also generate franking credits from 2 sources: tax paid on earnings at the company level, and from franking credits attached to dividends received on the underlying investments. These two factors have made LICs a popular choice for investors who seek a diversified portfolio of assets delivering a predictable income stream, notably SMSFs and retirees.
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