Aim VCTs can appear more volatile as their portfolio companies have share prices that quickly reflect changes of sentiment, but you can also be more confident about their valuation than you can for a generalist VCT whose portfolio consists of unquoted companies. 

You should also factor in fees. These tend to be much higher than you would expect for an actively managed equity fund, with an annual charge of around 2 per cent and performance fees too if hurdles are exceeded.

There are also initial charges, which can sometimes be discounted. Higher fees reflect the fact that VCTs are small (typically £100mn to £200mn of assets) and involve a lot of hands-on work for the manager.  

It is worth getting to know a VCT manager before you invest, so you understand a bit about how they select companies, work with them, and attempt to sell them for a profit. Some firms, such as Micap and Tax Efficient Review, produce reviews of VCT offers to support your research. 

VCTs can be rewarding investments. They offer generous tax reliefs, including upfront income tax relief and tax-free dividends. They are also impactful investments, since the money they invest in their portfolio companies makes a real difference to those companies’ chances of success. 

The risks are significant, however. Small, fledgling businesses often fail, and putting them in a portfolio dampens this risk rather than removing it. There is no guarantee VCTs will generate great long-term returns.

VCT rules could change in future – as has happened in the past – in ways that might be beneficial or detrimental to performance. 

That said, the new Labour government has acted swiftly to put VCTs on a firm footing by confirming the extension of the scheme for another 10 years.

The VCT scheme is well established, tried and tested, and can now look forward to its fourth decade with confidence. 

Nick Britton is research director of the Association of Investment Companies