Hit the January VCT sales

These additional shares are either paid for out of the issue costs on a VCT (typically 5.5 per cent) or by diluting the initial net asset value of the shares, so that later investors are effectively subsidising the early birds.

Early investment is clearly good for the VCT, as getting off to a good early start is an indication that a VCT will raise sufficient investment to go ahead - there is always a risk that a new VCT won't raise enough funds to be viable. But there is also the risk that your first-choice VCT may reach capacity and close early. Recent examples of early closures were the Baronsmead VCT and VCT2 top-ups that closed in December 2010.

VCTs provide income tax relief at the rate of 30 per cent of the amount subscribed for shares. However, income tax relief is only given on the cash amount subscribed to the VCT, so the additional early bird shares do not provide additional income tax relief.

Another reason to invest early, if you are employed, is to receive your VCT income tax relief through PAYE, rather than waiting to fill in a tax return. If you apply early enough, and the shares are allotted, once you then receive the income tax certificate relating to your VCT investment, this can be submitted to HMRC, who will then amend your tax code accordingly.

Everyone likes a bargain and VCTs have tempting tax advantages, but discounts and tax reliefs are not in themselves a reason to invest. VCTs are certainly becoming more mainstream - attracting £340m in the 2009-10 tax year, more than double the previous year. Expectations are that this will be another bumper year with predictions that last year's total will be beaten.

However, anyone looking at VCTs must decide whether they can tolerate the high risk, high charges and lack of liquidity involved. VCTs are really only suitable for long-term investors prepared to take a high level of risk and looking for regular income or capital growth, or for high earners who have already used their annual pension and individual savings account (Isa) allowances.

Patrick Connolly, head of communications at independent financial advisers AWD Chase de Vere, says: "In the past, many of the wrong people have invested in VCTs because of the tax advantages without fully understanding the risks involved or the likely lack of liquidity."

The average VCT fund currently stands at a discount of 16.7 per cent, with the discount on a number of funds being more than 30 per cent. This would offset any initial tax advantages for those who want to get their hands on their money quickly.

Some VCT providers have tried to negate the lack of liquidity by offering limited-life VCTs. These have become very popular in recent years, seemingly offering investors a way to benefit for the initial tax advantages and then access their money after five to seven years.

However, Mr Connolly says: "The jury is still out on limited-life VCTs as the early offerings have not yet come to maturity - so we don't know how successful they will be at returning capital to investors. Those that invest in real companies face becoming forced sellers as investors will expect their money back."

If you are interested in an early bird VCT offer, then make sure that you buy through a discount broker (see list below), who will rebate some of all of the typical 2.5 to 3 per cent commission payable on a VCT.

VCT recommendations

AWD Chase De Vere recommends the open-ended VCT products from established managers such as Baronsmead, Albion Ventures and Downing. Two Downing VCTs offer discounts for existing investors (see table).

Analysts at Bestinvest say Northern Venture Trust (www.nvm.co.uk), offering a 2 per cent discount for existing investors, is one of the best options for investors seeking a private equity VCT, giving it its top five-star rating. Triple Point VCT (www.triplepoint.co.uk) gets three stars because Bestinvest likes the managers' approach of looking for solid stable and cash generative businesses, but notes that the VCT has high charges.

If you want something more specialist, they also like the Hazel Renewable Energy VCTs (www.hazelcapital.com), giving them four stars, saying: "Hazel are new to VCTs but are a credible investment team with a strong background in the renewables field." Also, Edge Performance is an innovative VCT that offers the opportunity to invest in the entertainment industry, concentrating on live music and other events (www.edge.uk.com). Bestinvest gives this five stars, saying: "Edge is one of the more impressive VCT offers this season. They have a strong management team and their expertise within their sector is evident."