Offshore Mutual Fund
What it is:
An offshore mutual fund is a mutual fund based in another country.
How it works (Example):
Offshore mutual funds cannot be sold in the United States unless they comply with American regulations; however, they can invest in U.S. securities.
If, however, John Doe invests the $100,000 in mutual funds in Country X, which has less regulation and no capital-gains taxes, he may pay, say, only 0.75% in management fees and $0 in capital gains taxes on reinvested funds.
Accordingly, given two identical mutual funds, John's returns are higher from the offshore mutual fund.
Why it Matters:
Offshore mutual funds are sometimes in low-tax countries, which is why they can be attractive to investors in high-tax countries. It is important to overhead (and thus lower fees), but investors may also be prone to scams when in low-regulation countries. In some cases, offshore-fund assets are excluded from U.S. estate tax calculations.that the degree of regulation also differs among countries, which means offshore may have less operating