Venture Capital Trusts – have they become riskier?


#1

Venture Capital Trusts – VCTs for short – have been growing in popularity over the last few years. A number of factors have contributed to this state
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#2

The real problem here is that politicians cant or wont stop interfering with legislation around pensions. They’re happy to bend over backwards to help multi-millionaire’s or even billionaires but if you happen to be evil enough to save for your pension in your early 20’s (you wicked person), and your pension pot grows to exceed £1 million in total value you get clobbered.

I wholeheartedly agree about the risks with VCTs so eloquently descried by @satwaki-chanda, but it is just plain wrong that people of relatively modest means are forced to go down this route of investing in somewhat dodge new and small companies.


#3

Whilst some VCTs have made a considerable amount of money for investors, particularly if you got in at the right time, many have also lost rather a lot. That’re not helped by the extremely high fees and performance charged across the sector.

Evidence of this is the largesse metered out by the management groups by way of marketing.

 

I tend therefore to somewhat agree with @satwaki-chanda that anyone considering investing in them should proceed with caution. That’s not to say you absolutely should not do it but you absolutely need to spend some time truly understanding what it does, who the managers are and their track record and how they are remunerated.


#4

Thank you both @rubindd and @casper for your comments.As a number of articles on this site point out the tax breaks are given in return for the extra risk taken on when making this type of investment.

 

Another way of putting it is that the Government can afford to give the tax breaks - it won’t hurt the Treasury because the chances of a majority of investors making substantial gains (which are tax free) are not as great as say blue chip stocks and the standard investment trust. And of course investors don’t get tax incentives for the latter, apart from when you invest through a savings wrapper such as an ISA or pension.

 

Another thing worth mentioning - the rules are so complicated that it is very easy to fall foul of them. Perhaps this is where some of the costs go - towards monitoring the VCT’s tax status. But if it’s easy to fall foul of the rules, there are good chances of investors losing the tax breaks.