Venture capital trusts

chucknorris

Thrugelmir wrote: »

Part of the dividend income paid out may well be the repayment of capital as investments are liquidated. So don't base any decisions on yield alone. Very deceptive.

Yeah, I saw one VCT (just looking, I don't know enough yet to invest) which seemed to be guaranteeing a 5% dividend. I did think that as they can't really guarantee true dividend income (i.e. from actual dividends) then it probably means that it would be capital being (at least partly) used.

Thrugelmir

chucknorris wrote: »

Yeah, I saw one VCT (just looking, I don't know enough yet to invest) which seemed to be guaranteeing a 5% dividend. I did think that as they can't really guarantee true dividend income (i.e. from actual dividends) then it probably means that it would be capital being (at least partly) used.

VCT's are required to distribute 85% of their investment income every year. So unlikely to have sufficient reserves to maintain dividends in periods of lean capital redemption.

chucknorris

Thrugelmir wrote: »

VCT's are required to distribute 85% of their investment income every year. So unlikely to have sufficient reserves to maintain dividends in periods of lean capital redemption.

Have you invested in CVT's? Obviously you can see that I am curious about them, but I have to overcome some concerns:


1. The fees seem on the high side.
2. They don't look very transparent, so investing takes a lot of trust/faith in the management.
3. The end value/exit strategy looks very uncertain.
4. The non 'planned exit VCT's' are very illiquid.


Obviously the tax incentives appeal but balancing then against the above concerns isn't an easy thing for me to get my head around. Despite my reservations I think they are worth a punt, at the moment I can't see myself investing anything substantial, I think I would only start with only about 1% of my portfolio and see how it goes.

bowlhead99

Of course, "seeing how it goes" on a one off punt doesn't give any indication how it would go with another investment in another year. Perhaps review the 10 year returns of a lot of these funds over different time periods and then conclude whether those outcomes are acceptable to you, and then when you actually do the investing, ensure you invest in more than one fund and preferably on more than one tax year. Otherwise you won't be able to draw any meaningful conclusions on how it turned out.

If you're only committing a percent of your portfolio it could presumably triple or lose 100% without having a significant impact on your lifestyle, so it doesn't seem too much of a risk in that context. However others might be more cautious and if you don't fully understand the product, don't do it.