Investing in offshore mutual funds can provide an investor with a number of substantial and lucrative benefits. Overseas can be an attractive investment opportunity, but the most attractive advantage in offshore mutual funds are the tax benefits. Foreign investors in offshore mutual funds are usually able to significantly reduce their tax obligations, if not altogether eliminate the amount of taxes they pay.
Usually offshore mutual funds are established in popular countries like the Bahamas, Bermuda, as well as the Cayman Islands. Typically offshore mutual funds are popular in these countries due to their unregulated nature of investments. Privacy issues make offshore mutual funds attractive as many countries have laws that protect revealing the identity of the offshore mutual funds investor.
There are dangers associated with offshore mutual funds. It is difficult to manage your funds, as the distance between the investor of offshore mutual funds and the country he is associated with allows for little first hand communication with the fund manager. Despite restrictions that are beneficial regarding offshore mutual funds, each country has its own set of regulations, making it difficult to be familiar with differing rules from one country to the next. Plus, while taxes are lower, the offshore mutual funds investor must constantly educate himself on issues that can impact his finances. Certain countries now require taxes to be paid on all generated income, regardless of where the work actually took place.
Offshore funds work on the same principle as mutual funds, pooling investors' money to provide the benefits of a diversified portfolio of investments. A fund qualifies as an offshore investment if it is incorporated offshore and used by a non-resident. These offshore mutual funds usually pay little or nothing in the way of local taxes, but they may receive dividends depending on where they invest the assets. The same is true of offshore banking since offshore banks do not always deduct tax from the interest as their counterparts would have to do.
If tax benefits are not the investor’s main focus in using offshore funds or trusts, then there may be other options for offshore mutual funds. The type of investment chosen may simply not be an offshore account, due to regulations or simply a lack of market demand.
Investing in offshore mutual funds should be done with caution. Investors should be encouraged to select funds they are familiar with. Caution should be observed, especially with illegitimate investment companies targeting and preying on naive investors. Having a get rich quick attitude can lead your offshore mutual funds experience to be a negative one.