AIM Funds – how to invest in AIM focused mutual funds and investment trusts

Table of Contents

In this guide we take a look at AIM funds in the UK. We cover some of the available AIM funds to invest in, including both investment trusts and mutual funds.

Our team of finance professionals also explain how to invest in the AIM, as well as the potential benefits and risks of doing so. AIM investments can offer inheritance tax relief, which we also discuss – including AIM IHT portfolios and ISAs.

Table of Contents

This article is written by Talal, who is a CFA-qualified former institutional investment advisor and private equity associate. He used to advise clients with at least £1 billion to invest, so you’re in safe hands.

AIM funds (in the UK)

If you don’t want to buy AIM shares individually then you should consider investing in AIM funds.

These are investment funds set up with the purpose of investing in companies listed on the Alternative Investment Index (AIM). 

There are two distinct investment purposes for funds which invest in the AIM. First, many funds seek to invest in AIM companies because they are smaller and potentially high-growth businesses. These can provide attractive returns – although the risks are also higher.

Secondly, some AIM shares reduce inheritance tax as they get 100% business property relief. This means you can potentially pass on your AIM investments tax-free upon death. Funds set up to benefit from business property relief by investing in AIM shares are known as AIM IHT portfolios.

AIM IHT portfolios still seek to make a return on your investment, but they specifically choose AIM shares which will be eligible for business property relief. So, an investment into an AIM IHT portfolio is primarily made to pass on your shares free from inheritance tax rather than seeking a return on investment.

AIM IHT portfolios and ISAs are specialist products with high minimum investments. They’re usually only available to high net worth investors or via a regulated financial advisor, and we cover these in more detail in our AIM IHT portfolio guide.

Here, we’ll focus on the AIM funds available to most investors via retail brokers and investment apps.

AIM mutual funds

When you hear ‘fund’ mentioned it’s usually referring to mutual funds, which are a type of investment vehicle which pools together money from different people. The fund manager then invests it on their behalf. 

Mutual funds issue investors with ‘units’, which represent their stake in the fund in proportion to the size of their investments. Sometimes, mutual funds are referred to as unit trusts

Fund managers make investment decisions with the intention of growing the value of the fund and providing investors with a return. They do this by picking investments in various assets such as shares, bonds and property. This is classed as an active fund

There are no passive AIM tracker funds, such as ETFs (Exchange Traded Funds). Fore more on ETFs, read our guide to the best ETF platform.

Below we’ve picked out 3 mutual funds which invest in AIM listed shares. Mutual funds tend to have lower dealing fees than investment trusts and shares with most brokers.

Important note: we are not advising you to invest in these funds, they are simply examples of some of the funds available that will give you exposure to the AIM. You should do your own research before making investment decisions.

For investing in mutual funds we recommend Interactive Investor

Interactive Investor

Interactive Investor has more than 40,000 shares, bonds and funds to invest in. There’s also a range of investment ideas and funds lists to help you decide what to invest in.

Plus, dealing fees are lower than the other major ISA providers and regular monthly investing is free. It also has great customer feedback.

Interactive Investor is regulated by the FCA and has FSCS protection.

Schroder UK Dynamic Smaller Companies Fund

Fund structure: Mutual fund (OEIC)
Fund type: Accumulation
Ongoing charges: 1.67%
2023 performance: -7.68%
Benchmark: Deutsche Numis Smaller Companies plus AIM (ex IC) Index

The Schroder UK Dynamic Smaller Companies Fund is a mutual fund (open-ended investment company).

Schroder’s UK Dynamic Smaller Companies Fund seeks to invest in smaller companies, many of which are listed on the Alternative Investment Market. 

The fund is benchmarked against Numis Small Companies Plus AIM excluding Investment Companies Total Return GBP index. This is one of the primary indices that includes the AIM in its calculations.

Invest with Interactive Investor.

BlackRock UK Smaller Companies D Acc

Fund structure: Mutual fund (unit trust)
Fund type: Accumulation
Ongoing charges: 0.84%
2023 performance: +1.16%
Benchmark: Deutsche Numis Smaller Companies plus AIM (ex IC) Index

BlackRock’s UK Smaller Companies fund outperformed the Numis Index in 2023, one of the few funds which did so.

It invests at least 70% of its assets into equities, including those listed on the AIM. 

Buying AIM funds on Interactive Investor
BlackRock UK Smaller Companies fund on Interactive Investor.s app (27.03.24)

Invest with Interactive Investor.

TM Stonehage Fleming AIM Fund

Fund structure: Mutual fund (OEIC)
Fund type: Income
Ongoing charges: 0.67%
2023 performance: -12.83%
Benchmark: Numis Alternative Market Inc TR GBP

This fund invests 90-100% of assets in companies listed on the AIM, including other funds and investment trusts. 

The TM Stonehenge Fleming AIM Fund is benchmarked against the Numis Alternative Markets Index which tracks the performance of the whole AIM. Therefore this fund will give you very high exposure to AIM shares.

As it can invest in other funds, such as investment trusts listed on the AIM, it is not an AIM IHT portfolio. 

Invest with Interactive Investor.

AIM investment trusts

Similar to a mutual fund, investment trusts also pool together the money of investors but they do so in the form of a company with its own board. They’re also listed on a stock exchange so that investors buy shares in the fund, rather than ‘units’ as with mutual funds.

Investment trusts are also usually active funds. Brokers typically charge dealing fees on investment trusts the same as for shares.

Double discount

Investing in UK companies through an investment trust can give rise to what is sometimes referred to as the ‘double discount’ on small UK shares.

In the past few years, private equity firms and international companies have paid huge premiums when acquiring smaller listed UK companies. 

Some acquisitions have seen prices paid far in excess of the company’s market share price. There’s a view that smaller UK firm’s share prices undervalue the companies.

In addition to this, investment trusts – which, remember, are themselves listed companies – also tend to trade at a discount.

So, in theory, by investing in smaller UK listed companies through an investment trust which is trading at a discount, you are buying undervalued shares (the first discount) through an undervalued fund (the second discount). 

For this to be a worthwhile play, though, these discounts must ‘correct’ themselves and reach a ‘fair’ value. When, or if, this happens is the key question.

Regardless, the below investment trusts will give you exposure to AIM shares.

Interactive Investor

Interactive Investor has more than 40,000 shares, bonds and funds to invest in. There’s also a range of investment ideas and funds lists to help you decide what to invest in.

Plus, dealing fees are lower than the other major ISA providers and regular monthly investing is free. It also has great customer feedback.

Interactive Investor is regulated by the FCA and has FSCS protection.

Abrdn UK Smaller Companies Growth Trust plc

Fund structure: Investment trust
Ongoing charges: 1.15%
2023 performance: +1.91%
Benchmark: Deutsche Numis Smaller Companies plus AIM (ex IC) Index

This investment trust invests in small cap UK companies and is benchmarked against the Deutsche Numis Smaller Companies plus AIM (ex investment companies) Index.

Abrdn UK Smaller Companies Growth Trust plc therefore invests in AIM companies and will give you exposure to the AIM if you invest in it. It’s not restricted to only AIM shares, though, so it can also invest in small companies listed on the main section of the LSE.

Over the last 12 months (March-23 to March-24) it’s traded at an average discount of 13.45% compared to its Net Asset Value (NAV). As we mentioned, this is an example of the ‘double discount’ on UK shares.

Invest with Interactive Investor.

Invesco Perpetual UK Smaller Companies Investment Trust Plc

Fund type: Investment trust (IPU:LSE)
Ongoing charges: 0.96%
2023 performance: +7.65%
Benchmark: Deutsche Numis Smaller Companies plus AIM (ex IC) Index

Invesco’s Perpetual UK Smaller Companies investment trust saw a solid return in 2023, outperforming its benchmark.

As with most of the other AIM funds in this guide, it’s benchmarked against the Numis Smaller Companies plus AIM index (excluding investment trusts).

In another example of the ‘double discount’ effect, it has traded at an average discount of 9.96% compared to its Net Asset Value (NAV) over the last 12 months (March-23 to March-24).

Invest with Interactive Investor.

AIM IHT Portfolios

There are discretionary funds run by professional fund managers for the purpose of attracting business property relief and therefore 100% relief from inheritance tax. These are known as AIM IHT portfolios.

Read more in our AIM IHT portfolio guide – including how to build your own and investing in the AIM through an ISA.

Why invest in the AIM

Investing in the AIM should be considered for several reasons. Early stage companies are often listed on the AIM. So, there’s the potential to invest in companies which may see high growth in the future.

There are also potential tax advantages from investing in AIM shares. The main reasons to invest in the AIM are:

  • Exposure to potentially high-growth companies
  • A way of investing in UK focused businesses
  • Possible inheritance tax relief on AIM shares
  • No stamp duty

We covered the potential tax advantages above. You should also be aware of the risks of AIM investing, which we also cover below.

AIM funds – risks

When investing in AIM shares there are additional considerations beyond the usual warning that your capital is at risk.

AIM shares can be highly volatile. They’re generally traded in lower volumes than main market shares so prices can quickly move up or down. Investing in the AIM should be considered part of a diversified investment portfolio. 

It’s also important to remember that the tax status of AIM shares can be changed by HMRC.

For example, a new government could impose stamp duty on AIM shares. There’s no currently no suggestion that the current or imminent future government will do so but that could change.

Similarly, the government could remove inheritance tax exemptions on AIM shares. If it did, then the value of AIM shares could rapidly fall as people seek to exit their investments made for IHT purposes. This could mean a major loss on your AIM investments.

As we mentioned above, HMRC does not prospectively confirm the eligibility of any shares for business property relief. It is only when the relief is actually claimed that HMRC will confirm eligibility.

So, there is always a risk that HMRC will rule one of your investments in AIM shares to not be eligible. That should be unlikely, though, if you have bought AIM shares for IHT purposes and followed the guidelines.

Finally, although we’ve outlined the current tax situation around AIM shares, tax is always down to your personal circumstances. 

If in doubt, seek regulated advice from a qualified financial advisor or tax accountant. We recommend Unbiased, who will connect you to an appropriate professional for your needs.

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Find qualified, independent and regulated finance professionals.
If you’re unsure of your options or financial position you should seek professional advice. Unbiased has over 27,000 financial experts – simply enter your details and they will match you to the best financial advisor for your needs, including a no-fee initial consultation

Interactive Investor, like all of the investment platforms we cover, is regulated by the Financial Conduct Authority (FCA) and is part of the Financial Services Compensation Scheme (FSCS). The FSCS protects up to £85,000 of your money in the unlikely event that the platform goes out of business.

AIM funds – summary

So, although there are no AIM ETFs or tracker funds, there are mutual funds and investment trusts which give you exposure to AIM shares.

We’ve outlined 3 mutual funds and 2 investment trusts as examples of the funds available for you to invest in. This is not financial advice and you should do your own research before making investment decisions.

Investing in the AIM has some unique potential benefits, particularly around inheritance tax. Shares listed on the AIM may have high growth potential, too, as they tend to be earlier stage companies.

On the flip side, investing in the AIM carries risks. It’s a less liquid market meaning prices can quickly jump up or down. Companies listed on the AIM are not as well established as those listed on the main market of the LSE, and may be more likely to fail.

Further, the inheritance tax status of certain AIM shares may change at any time, potentially causing a sell off. 

Investing in AIM funds, run by professional managers, is one way to mitigate some of the risks compared to building your own portfolio. 

We recommend Interactive Investor for investing in AIM funds.

Interactive Investor

Interactive Investor has more than 40,000 shares, bonds and funds to invest in. There’s also a range of investment ideas and funds lists to help you decide what to invest in.

Plus, dealing fees are lower than the other major ISA providers and regular monthly investing is free. It also has great customer feedback.

Interactive Investor is regulated by the FCA and has FSCS protection.

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