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MARKET COMMENT
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The Alternative Investment Market (AIM) is one of the City's unsung success stories. Formed in 1995, the junior bourse of the London Stock Exchange (LSE: LSE) has since witnessed a total of 1,138 admissions to its market, with 700 firms listed at the end of June. Collectively, the companies have raised nearly £9b from investors. AIM's fortunes are in stark contrast to other fledgling markets, such as Germany's Neuer Markt and Nasdaq Europe, both of which have had to close recently. AIM possesses four main advantages over the LSE's Official List: easier entry criteria, a less stringent regulatory regime, easier acquisition rules and certain tax benefits. Such measures make AIM a prime destination for young and growing companies looking for further funding. In fact, there are just 19 AIM-listed companies worth over £100m. The vast majority are valued under £25m and have short financial histories. Still, AIM has produced its fair share of successful growth stocks over time, with the likes of ASK Central (LSE: AKC), Majestic Wine (LSE: MJW), International Greetings (LSE: IGR) and Mears (LSE: MER) being among the favourites of AIM connoisseurs. Sadly, those transferring from AIM to the main market in recent years have tended to lose their shine, as investors of Fitness First (LSE: FTF), Durlacher (LSE: DUC) and Sci Entertainment (LSE: SEG) can testify. AIM does suffer one major drawback. The shares listed upon it cannot be held within a tax-free ISA wrapper. However, AIM shares do attract taper relief, though calculating your capital gains tax (CGT) can be tricky (especially as the taper rules have changed since their introduction). As an indication of the taper relief benefit, a higher rate taxpayer pays only 10% CGT on an AIM share held for two years or more. AIM shares are also exempt from inheritance tax after two years. Is AIM suitable for the ordinary investor? Though the market appears to be doing relatively well compared to its peers, fewer regulatory requirements do make AIM shares higher risk investments. There's scope to find a genuine growth stock among the many pretenders on AIM, though the inevitable reward from such a discovery -- a large capital gain -- does not sit easy with the present ISA rules. It's worth noting there are nearly 700 ISA-friendly shares on the LSE's main market valued under £50m, which provides another fertile hunting ground for small growth shares. More: Discuss AIM Companies | Taper Relief The author owns shares in London Stock Exchange.