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LIC premium and discount: what you're actually buying

A Listed Investment Company holds a portfolio of assets — usually Australian or global shares. Every month, the LIC announces its Net Tangible Assets (NTA) per share, which is the value of its portfolio divided by shares on issue. When you buy the LIC on the ASX, you pay the market price — which may be above or below that NTA.

Why gross vs net NAV changes the picture

Most LICs publish two NTA figures: pre-tax (gross) and post-tax (net). The gross figure ignores the tax consequences of the portfolio. The net figure deducts a corporate-level estimate of tax payable on unrealised gains. Neither figure adjusts for yourpersonal tax situation — which is where this calculator adds value.

Franking credits are the most impactful personal tax variable. If you are in pension phase (0% tax), fully franked dividends are worth 30c extra per 70c received — a genuine 43% uplift. If you are on the top marginal rate (47%), you pay additional top-up tax on those same dividends, making them worth less than their face value.

Embedded capital gains: the hidden liability

The difference between a LIC's pre-tax and post-tax NTA represents unrealised capital gains sitting inside the portfolio. When those gains are eventually realised — when the LIC sells holdings — tax becomes payable, reducing the cash that flows out to you. A LIC trading at a 5% discount to pre-tax NAV might actually be at a slight premium once you adjust for this embedded tax liability.

How to find a LIC's NTA

Australian LICs are required to publish monthly NTA (Net Tangible Assets) announcements to the ASX. Search the ASX announcements page for the LIC's code, filter by "NTA Announcement", and you will find both pre-tax and post-tax NTA per share, plus the unrealised gains figure.

Dividend smoothing — the LIC structural advantage

Unlike ETFs, which must distribute all income received from underlying holdings each year, LICs retain earnings inside the company structure and build up profit reserves. This allows the board to smooth dividends across market cycles — maintaining or growing the dividend per share even in years when underlying portfolio income falls. Australian Foundation Investment Company (AFI) and Argo Investments (ARG) have both maintained unbroken dividend growth records spanning decades. For income-focused investors — particularly retirees — this predictability has real value that is not captured in a simple MER comparison with ETFs.

Major Australian LICs — a reference snapshot

The largest and most established Australian LICs include: Australian Foundation Investment Company (AFI, ~$10B), Argo Investments (ARG, ~$6B), Milton Corporation (MLT, ~$3.5B), Whitefield (WHF, ~$700M), and Diversified United Investment (DUI, ~$1B). These older LICs typically trade at narrow discounts or premiums to NTA and pay fully franked dividends. Newer LICs — particularly those launched since 2015 — have had more variable NTA discount/premium histories and some have struggled to maintain tight NTA alignment after initial enthusiasm faded. The vintage and track record of the manager matters significantly when evaluating a LIC.

LIC vs ETF — which is right for you?

ETFs and LICs serve different investor needs. ETFs are transparent (daily NTA disclosure), liquid, and low-cost for passive strategies. LICs offer dividend smoothing, active management, and franking credit advantages in SMSF pension phase. The NTA discount/premium creates a secondary opportunity — buying a quality LIC at a persistent discount effectively gives you the underlying portfolio at less than fair value. The risk is that discounts can widen rather than narrow. Most investors hold both: ETFs for core passive exposure and selected LICs for income stability and tax-effective dividends.