What are the risks?

VCTs are aimed at wealthier investors who can afford to take a long-term view and can accept falls in value.

There are risks associated with investing in younger, venture capital backed companies. The companies will generally be at an earlier stage than the more developed quoted companies and will therefore carry a higher risk of failing. Also, these are long term investments. You have to hold your investment for at least five years to take advantage of the tax breaks and besides most VCT managers would suggest you have an outlook of at least five to 10 years regardless of the tax breaks.

You could sell your shares if you needed money quickly although, especially in the early years, there would be the significant possibility of a capital loss. In addition, if you sell within five years you will have to repay the reclaimed tax. However, the reward for this higher level of risk for those investors who are prepared to invest for the medium-to long-term can be substantial.

If the VCT fails to raise sufficient money at launch then the resulting portfolio of investments may be more concentrated and this will increase the risks.

Although some VCTs may be viewed as less risky than others, investors should remember that VCTs as a whole are higher risk investments.

As well as investment risks, it is possible that HMRC could withdraw the tax status of the VCT if it fails to meet the requirements.

Each VCT will issue a prospectus at launch which gives details of specific risks, we suggest you familiarise yourself with this and understand it fully before investing.