Offshore Mutual Fund

Written By
Paul Tracy
Updated July 26, 2021

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.

Let's say John Doe has $100,000 to invest in mutual funds. If he invests the money in American mutual funds, he will pay, say, a 1.5% management fee, as well as capital gains tax on anything he reinvests in the funds.

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 note that the degree of regulation also differs among countries, which means offshore funds may have less operating overhead (and thus lower fees), but investors may also be prone to scams when investing in low-regulation countries. In some cases, offshore-fund assets are excluded from U.S. estate tax calculations.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Offshore Mutual Fund.
Be the first to ask a question

If you have a question about Offshore Mutual Fund, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Offshore Mutual Fund, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Offshore Mutual Fund

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms