What is a VCT (Venture Capital Trust)?

A VCT is a company whose shares trade on the London stock market, just like Barclays or Vodafone. However, rather than banking or telecoms, a VCT aims to make money by investing in other companies. These are typically very small companies which are looking for further investment to help develop their business. Dividends are the primary source of return for VCT investors.

A VCT is distinguished from other investment trusts in that the manager is not just looking to provide capital but also advice. This could be knowledge of a particular sector or hands on experience of actually running a company. By working closely together the chosen firms should be able to expand more quickly, increasing their value and potentially providing better returns for investors. Then, normally between three and seven years after investment, the VCT manager will look to float or sell the business, take a profit and move on. Generally, any profit is paid out to the VCT investors as a tax-free lump sum and the original capital is reinvested in the next opportunity.

These companies make VCT investing very exciting. The VCT often invests at an early stage in its development so it is a higher risk investment. This means that the VCTs are aimed at wealthier, sophisticated investors who can afford to take a long-term view and accept falls in the value of their investment.