Exchange-traded funds (ETFs) and listed investment companies (LICs) are both bought and sold on the ASX, and both give you a diversified portfolio in a single trade. The structural difference between them, open-ended versus closed-ended, changes how their price behaves and how income reaches you. This guide explains those differences for Australian investors weighing the two.
General information only, not financial advice. Figures are approximate and as at Q2 2026. ETFLens does not hold an Australian Financial Services Licence (AFSL).
Open-ended versus closed-ended
An ETF is open-ended: units are created and redeemed as money flows in and out, so the number of units on issue changes with demand. Authorised participants arbitrage any gap, which keeps the traded price close to the value of the underlying holdings (the net asset value, or NAV). A LIC is closed-ended: it is a company that raised a fixed pool of capital at listing and issued a set number of shares. To buy in, you purchase existing shares from another investor rather than having new ones created, so the share price is set by supply and demand on the market.
Discounts and premiums to NAV
Because a LIC's share count is fixed, its price can drift away from the value of the assets it holds. A LIC trading below its NAV is at a "discount"; one trading above is at a "premium". A discount means you can buy a dollar of assets for less than a dollar, but a discount can persist or widen, and there is no mechanism that forces the gap to close. ETFs largely avoid this through the creation and redemption process, so they typically trade near their NAV. This price behaviour is one of the main practical differences between the two structures.
Franking and income
Both can pass on franking credits, but the mechanics differ. A LIC is a company that pays company tax, so it can pay fully franked dividends and can smooth them, holding back income in strong years to support payouts in weaker ones. An ETF is a trust that passes through the income and franking it receives from its underlying holdings, so its distributions move more directly with what the portfolio earns. The after-tax value of a franked distribution depends on your marginal rate; the franking calculator can estimate the grossed-up figure. Past performance and past distributions are not a reliable indicator of future returns.
Management style
Most ASX ETFs are passive: they track an index at a low fee. Many LICs are actively managed, with a manager selecting holdings, and their fees and approach vary widely. There are exceptions in both camps, since active ETFs and a few index-style LICs exist, so the structure does not always tell you the strategy. Check the fund's own documents for how it actually invests.
Which suits you
An investor who wants a price that tracks the underlying assets closely and a low, predictable fee may lean toward index ETFs; an investor drawn to a specific manager or a smoothed, fully franked dividend may consider a LIC and accept the discount-or-premium behaviour the closed-ended structure brings. Whether either is appropriate depends on your goals and circumstances, which ETFLens cannot assess. You can browse ASX ETFs or see the highest-yielding ASX ETFs, where distribution yields are shown as historical figures.