But most EIS funds are closed-ended, which means money is raised during an offer period for subsequent investment in EIS-qualifying companies.
Once the offer period is closed, new investors will not be sought and investments are locked-in for at least three years – the qualifying period to receive tax relief.
According to Susan McDonald, chairman of Calculus Capital, the investor benefits from closed ended funds are:
1) Ability to track the fund’s performance over time.
2) Negotiated warranties and protections for the investments.
3) Planned diversification, which can help to reduce market risk.
EIS funds are relatively illiquid.
Investors’ money, plus any growth, will usually only be returned after the three-year qualifying period and realisations of investments generally depend on trade sales or flotations.