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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you invest

  • As with all investments, there is a chance of financial loss. However, investing in Venture Capital Trusts (VCTs) carries a higher risk compared to other investments, because they invest in smaller companies. Smaller companies have a higher failure rate than larger, more established firms and are best suited to investors who are prepared for the possibility of losing their entire investment
  • The value of investments and the income from them will fluctuate and may be affected by economic factors such as changes in interest rates. Tax rules change and tax relief will depend on your individual circumstances.

2. You are unlikely to get your money back quickly

  • VCTs are considered long-term investments and are not suitable for everyone. They are best suited for seasoned investors who don't require quick access to their funds. Additionally, VCTs are less liquid than other stock market investments, meaning they are more difficult to sell.
  • Investors should be aware that the sale of new shares in a VCT within five years will require repayment of the 30% income tax relief. Hence, an investment in a VCT is not a short or medium-term investment.
  • The secondary market for shares in VCTs is limited so you should consider your investment as long-term.

3. Don’t put all your eggs in one basket

  • Diversification plays a crucial role in investing. By allocating your money across a broad range of investments and products, you will spread out the risk and enhance the likelihood of achieving an overall positive return on your investment portfolio.
  • A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

4. The value of your investment can be reduced

  • The value of investments, along with the income they generate, can vary and potentially decrease, and will be influenced by economic factors such as interest rate changes.
  • Past performance should not be regarded as an indication of future performance.
  • The performance of the portfolio will heavily rely upon the ability of the fund manager to select profitable investments and there is no guarantee this will happen.

5. You are unlikely to be protected if something goes wrong

  • VCTs are not generally covered by the Financial Services Compensation Scheme (FSCS) and as a shareholder of the company you would not be able to make a claim to the FCSC in the event that the company is unable to pay out.