AIM shares now allowed in ISAs – but should you take the plunge?
The Treasury announced plans to open up AIM for ISA investment in the Budget in March - and brave investors have hit the market as they seek to take advantage of a new string to their bow in terms of their stocks and shares ISA holdings.
However, AIM shares involve a degree of risk - they can be very volatile and have a high risk of failure compared to some other types of ISA-eligible investments. This is one of the reasons that the Government had been hesitant to allow them into investment ISA portfolios in the first place.
What are the pros of including AIM shares in your investment ISA?
- In most cases, AIM shares are already exempt from inheritance tax. What's more, from next year, investors won't have to pay stamp duty on AIM shares.
- AIM shares can offer investors the opportunity to maximise any gains in the future success of companies by getting in early, while the company is still relatively small.
- The inclusion of AIM shares in ISAs is expected to help boost fledgling businesses - so if you are keen to support smaller companies, this could offer an opportunity to do so using your investment ISA allowance.
What are the cons?
- The listing requirements for AIM shares are less strict than those of the main market - a fact that makes AIM an attractive proposition for newer, unproven companies, but can also increase investment risk.
- AIM tends to attract companies operating in riskier areas, such as technology or natural resources.
- AIM shares are historically volatile, so you need to be prepared to ride out fluctuations in the market. In the past four year, the AIM has outperformed the FTSE 100 slightly overall - but in 2008, the market lost around 2/3 of its value that year.*
So, AIM shares are not for the faint-hearted, and definitely need serious consideration before taking the plunge. It's a good idea to talk to an independent financial adviser if you are unsure about the suitability of a particular investment.
* Source: Fidelity Worldwide, 24/07/13
Past performance of AIM shares should not be seen as an indication of future performance. Some AIM shares are less readily realisable than others and it may therefore be difficult to deal in or obtain reliable information about their value. AIM shares carry a higher degree of risk of losing money than other UK shares and it may be difficult to deal in these shares. There is usually a difference between the buying price and the selling price of these shares. If they have to be sold immediately, you may get back much less than you paid for them. AIM share prices may change quickly and may go down as well as up. It may be difficult to obtain reliable information about their value or the extent of the risks to which they are exposed.
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular product. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek independent financial advice. The tax treatment of ISAs depends on the individual circumstances of each client and may be subject to change in the future.