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There are two types of EIS fund, the Approved and Unapproved. These formal HMRC terms are ill-chosen as they imply the Approved fund is lower risk. It does offer certainty of getting EIS reliefs, which some might see as a benefit. However, from an investment standpoint, the Unapproved fund is lower risk because it does not have artificial time pressures forced upon it by the rules.

In return for the Approved fund investing at least 90% of its money in at least four EIS qualifying companies within 12 months of the fund being closed, HMRC will allow EIS income tax relief to be claimed at the point of investment in the fund.

The Unapproved fund is more flexible. It can invest when it likes and in as many or as few investments as it likes, but EIS relief is only available on a deal-by-deal basis from the date individual investments are made.

Finally, there is the EIS portfolio service which is specific to one investor and has some greater flexibilities such as the right to withdraw from the service at any time.

HMRC publishes guidance notes on EIS and EIS funds, which are available from its website (www.hmrc.gov.uk/eis).