What is an Offshore Mutual Fund?
An offshore mutual fund is a mutual fund based in another country.
How Does an Offshore Mutual Fund Work?
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 Does an Offshore Mutual Fund Matter?
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