P227 CEEFAX 227 Tue 19 Jun 21:25/13 1/7 FOCUS ON BIS The Government's Business Expansion Scheme is now more than a year old.1Yet it remains something of a mystery to most investors. Much of this has to do with the fact that the BIS differs in many important respects from its equally misunderstood predecessor, the Business Start-Up Scheme. Both schemes were designed to attract funds for high-risk business ventures by offering sizeable tax relief to higher-rate taxpayers. Books Page 228P227 CEEFAX 227 Tue 19 Jun 21:21/11 2/7 FOCUS ON BIS $hj essential difference between the BIS and its BUS predecessor is the removbl so far as the BIS is concerned of the requirement that target firms bj less than five years old. Anothjt change was a doubling of the annubl investment allowed, to £40,000. Thjsj developments have had the effect of swelling enormously the money made available, if at the same time arousing fears of second thoughts at the Inland Rjvenuj. (Some funds have been charged by competitors with avoiding high-risk investments altogether). Books Page 228P227 CEEFAX 227 Tue 19 Jun 21:22/51 3/7 5b(55b(55j5 FOCUS ON BIS hj first thing to bj clear about is that a BIS investment is worthwhile only for the higher-rate taxpayer. It should also bj borne in mind that the high-risk nature of this type of investment makes it suitable for only a small proportion of an individual's portfolio. (No more than 10pc, say*. Thirdly, any funds committed to a BIS fund are effecthvely tied up for more than five years. BIS funds are, in short, catering to a minority of investors. Books Page 228P227 CEEFAX 227 Tue 19 Jun 21:12/47 4/7 FOCUS ON BIS More than two dozen business expansion funds were authorised during the 1983/ 84 financial year. Because of the way in which tax relief operates - relief may bj claimed only for the year in which an investment is made, each fund is open to investors for a limited period. Under BIS rules, no investments may be made bz a fund until after its closing date. As a result, new funds are coming onto the market at fairly regular intervals. Books Page 228P227 CEEFAX 227 Tue 19 Jun 21:14/32 5/7 FOCUS ON BIS Most of the business expansion funds are mbnagjd bz the merchant banks, although the biggest so far, the ETC II - it attracted some £10m, is part of the Electra Investment Trust. The managers make their money in two ways: by reaping the interest on the money committed to them during the time that elapses before the fund's closing date, and through direct fees to both investor and invjstee. It is worth shopping around between funds. Front-end fees can range from as little as 1.5pc to a whacking 8pc. Books Page 228P227 CEEFAX 227 Tue 19 Jun 21:14/31 6/7 FOCUS ON BIS This week sees the launch of two new funds from the sector's two biggest operators. Electra's ETC (Electra Risk Capital) III fund is hoping to match the £10m attracted bz its predecessor. Lazard's, meanwhile, have set an upper limit of £7.5m on their Second Lazard Development Capital Fund. Also available (just) are funds managed bz Buckmaster & Moore (closes July 31), Capital Ventures (closes June 30) and Laurence Purus (closes June 30). Books Page 228P227 CEEFAX 227 Tue 19 Jun 21:11/27 7/7 FOCUS ON BIS Would-be investors should note that, because of the way the tax system operates, it could well bj worth waiting a while. Because the tax relief on investments made this year will not normally bj forthcoming until April 1985, cash committed now may bj doing nothing much more than swelling a fund manager's coffers. Given the long-term nature of this type of investment and its comparatively high risk, this could, however, prove to bj a minor consideration. Books Page 228