SEIS Funds vs Direct Investing: Choosing Your Route
The two ways into SEIS compared honestly: control, diversification, fees, paperwork and which suits which investor.
In this article
There are two ways to own SEIS shares: pick companies yourself, or pay a manager to pick them for you through SEIS funds. The tax reliefs are identical either way. What differs is who does the work, who takes the fees, and how many baskets your eggs sit in. Having done both, I hold no romance about either; here is the honest comparison.
Start with what does not change
Whichever route you take, you end up the beneficial owner of new ordinary shares in small, young, risky companies. The 50% relief, the CGT exemptions and loss relief flow through in both cases, certificate by certificate, as set out in the reliefs guide. No route makes the underlying companies safer, and any pitch implying a fund makes SEIS low-risk deserves your scepticism.
Direct investing, plainly
You source deals, judge founders, negotiate occasionally, and subscribe directly. The advantages are real: no ongoing fees, full control over what you back, the ability to concentrate on sectors you genuinely understand, and one clean SEIS3 per company. The costs are equally real: sourcing decent deal flow is work, due diligence is your job alone, diversification requires discipline and enough capital to spread, and there is nobody to blame later. Direct suits investors with domain knowledge, networks that surface deals, and the temperament to say no most of the time.
SEIS funds, plainly
You subscribe once; a manager deploys your money across a portfolio of qualifying companies, typically over months. The advantages: instant-ish diversification, professional screening, deal flow you could not reach alone, and administration handled. The costs: initial and ongoing fees that compound quietly against returns, no say in what you hold, deployment delays that can straddle tax years and complicate carry back, and a stack of SEIS3 certificates arriving on the fund’s schedule rather than yours. Funds suit investors who want the asset class without the second job.
Side by side
| Direct | SEIS fund | |
|---|---|---|
| Who picks | You | The manager |
| Diversification | Only if you build it | Built in, typically 5 to 15 companies |
| Fees | None ongoing | Initial plus annual, sometimes performance |
| Deal access | Your network | Manager pipeline |
| Paperwork | One SEIS3 per deal, your admin | Certificates batched, admin handled |
| Timing of relief | At your share issue | As the fund deploys, possibly across tax years |
| Control and blame | All yours | Neither yours |
Fees deserve their own paragraph
A percent or two initial plus an annual charge sounds trivial next to a 50% relief, and that framing is exactly how fees hide. The relief is a one-off; fees run for the life of the fund, against capital that is locked in anyway. Before subscribing, ask for the fee schedule in pounds on your intended cheque across a seven-year hold, and ask what the manager charges the investee companies too, because that also comes out of your return. A good manager answers in one email. Evasion is information.
The deployment wrinkle
Fund subscriptions do not buy shares on day one. Your relief arises as each underlying company issues shares to you, which can spread across months and two tax years. If your plan depends on relief landing in a particular year, carry back per the 50% guide recovers some control, but ask any fund for its realistic deployment timetable before you rely on it.
Which route for which investor
- Choose direct if you have sector judgement, deal flow, time for diligence, and enough capital to spread across several companies yourself.
- Choose a fund if you want exposure with diversification handled, accept fees as the price, and have checked the manager’s record and terms.
- Many do both: a fund for the base layer, direct cheques where they genuinely know something.
Whichever you choose, the approved and unapproved fund distinction affects timing and paperwork, and it is worth two minutes: approved vs unapproved SEIS funds.
Reading a fund’s terms in ten minutes
Every fund document yields to five questions. What are the fees, initial, annual and performance, expressed in pounds on your cheque over seven years? What is the deployment commitment, how many companies, by when, and what happens to undeployed cash? Who has skin in the game, and how much of the manager’s own money rides along? What did the last two vintages actually return, realised rather than marked? And what does the fund charge the companies it invests in, because fees taken from the portfolio are fees taken from you by another door. A manager who answers all five in one reply is telling you something; so is one who does not.
The middle path: syndicates and angel networks
Between the two poles sits co-investing: a lead investor sources and negotiates, members choose deal by deal. You keep direct ownership and per-company SEIS3s, gain shared diligence and access, and pay less than fund fees, sometimes only a carry to the lead. The costs are subtler: leads have their own incentives, diligence quality varies with whoever ran it, and saying no inside a enthusiastic syndicate takes more spine than saying no alone. Treat a lead’s conviction as an input to your own diligence, never a substitute.
The admin reality, either way
Direct portfolios generate one SEIS3 per company and a folder you maintain yourself. Funds batch the paperwork but stretch it across deployment, and the difference matters at tax time: your claim rhythm follows the certificates, not your subscription date. Whichever route, reconcile certificates against subscriptions before each January, and read the claiming guide once so the arrival of each SEIS3 is a two-minute task rather than a small research project.
Worked: £50,000, two ways
Put £50,000 through each route and watch the differences move. Direct: five cheques of £10,000 into companies you sourced; no fees, so the full amount works; relief lands as each issue completes; your diligence hours are the hidden cost, and one certificate folder per company is yours to keep. Through a fund: the same £50,000 less an initial charge starts deploying; annual fees shave the working balance each year; relief arrives with deployment, perhaps across two tax years; and a professional filter stands between you and your own enthusiasms, which for many investors is worth every basis point.
Neither column wins on paper. The right answer is the one whose costs you will actually pay happily: time in the first case, fees in the second.
Common questions
Are SEIS funds better than direct investing?
Neither is better; they trade control against convenience. Funds add diversification and screening for fees; direct keeps fees and control with you but demands time, judgement and deal flow.
Do SEIS funds give the same tax relief?
Yes. You beneficially own the underlying shares, so the 50% relief, CGT exemptions and loss relief apply per company, evidenced by SEIS3 certificates as the fund deploys.
What fees do SEIS funds charge?
Typically an initial charge plus annual management, sometimes performance fees, and often charges to investee companies. Ask for the schedule in pounds over the expected hold.
Do SEIS funds and direct deals get the same reliefs?
Yes. SEIS funds are a wrapper around the same underlying shares, so the reliefs flow from the companies, not the wrapper. A portfolio built through SEIS funds and one built directly are taxed identically; what changes is who does the work, what it costs, and how many certificates you handle.
