Seneca Partners has launched the first Enterprise Investment Scheme (EIS) fund to invest solely in AIM listed shares.
The fund comes with an initial charge but does not have an ongoing fee for investment management.
However, Seneca receives a 4 per cent fee when the investments are sold, and a 20 per cent profit share on any gains made by the investments in the fund overall.
Investors in EIS eligible companies receive a tax break if they retain the assets for at least three years prior to sale.
Listed companies are not eligible, but under the rules shares listed on the AIM market are not counted as listed, and so some AIM shares can be invested in by EIS funds.
Richard Manley, chief executive at Seneca, said: “The advantage of doing EIS investing through the AIM market is you get the tax reliefs of all EIS investing, but you also have the liquidity of the AIM market, which, while not completely liquid, is more liquid than the private companies that are what other firms invest in.
"In theory you can invest for three years plus one day, and at the end of that period get your tax relief, and if we are doing our jobs properly, also have shares that have risen in value.”
Not all companies on AIM are eligible for the tax reliefs that come with EIS investing. But the rules are determined by the level of gross assets within a particular company, rather than by the market cap.
As many companies trade at a premium to the value of their gross assets, particularly in the technological and services based economy, the market capitalisation of the companies that can be invested in is relatively high.
Minesh Patel, an adviser at EA Financial Solutions in London, said he has had predominantly negative experiences investing in EIS.
He said: “It is a tricky market to navigate. We put some clients in EIS that was managed by a well known firm, and the clients all lost money, even when the tax breaks are taken into account.
"I would say now, if I was advising a client in it, [I would] spread the EIS money across four or five different providers to minimise the risk of it going wrong.”
david.thorpe@ft.com
