What are Offshore Funds?
Offshore funds are also under the purview of RBI and SEBI mutual fund
These schemes invest in equities or fixed-income securities, and funds are country-specific, region-specific, or theme-based funds.
Offshore funds, which are also known as international or foreign funds, are mutual fund schemes that invest in international markets, that is in overseas companies or MNCs, and in major market places worldwide where securities are traded and known as exchanges.
An international market is geographically a market outside the international borders of a company’s country of citizenship. For example, a company was formed in the United States. Therefore any geographic area outside the United States where the company conducts business is an international market of that company. The concept is just the opposite of a company’s domestic market, which is the geographic region within the national boundaries of a company’s home country.
Offshore funds help investors enjoy direct access and exposure to international brands and businesses.
What is an Offshore Fund?
An offshore or foreign fund could be a corporation, a unit trust, or a limited partnership with the authority abroad. Here investments usually made in the form of units, shares, interests, or partnerships.
The stocks or businesses with extraordinary growth may not be available in the listed space in India. But, you can be part of such companies through international funds that help in diversification across geographies. When the Indian economy is not doing well, global markets may give a higher return.
NRIs and Indian residents can both invest in these funds. Funds that are offered to Indian investors invest in international markets either directly or may invest in other funds in those markets in the form of a fund of funds, which is called a feeder route.
How do Offshore Funds work?
Offshore funds are also under the purview of RBI and SEBI mutual fund guidelines. The fund house should also comply with provisions of the foreign country where they register.
An offshore fund is managed by a custodian, a fund manager, an administrator, and a prime broker. As per SEBI rules, all these functionaries must hold relevant licenses and qualifications.
What are the types of Offshore Fund?
These schemes invest in equities or fixed-income securities, and funds are country-specific, region-specific, or theme-based funds. Some schemes invest in the US or Europe or invest in sectors such as consumption, energy, and real estate, which are called theme-based funds.
Who must invest in Offshore Funds?
Offshore funds mostly have NRIs as investors. Indian resident investors can also invest in this fund. As an Indian resident, you have to invest only in Indian currency, just like any other mutual fund. You have to select the fund, write a cheque, and submit the application form to a fund house or can apply online.
Things to consider before investing in Offshore Funds
In the case of offshore funds, investors need to know about the economic and political conditions of the country where your chosen fund house is planning to invest your money. You also need to know about the following:
Risk
In the case of offshore funds, price, rates, market fluctuations, policies, tax laws, and other developments in both countries can impact your returns.
International funds also come with currency risks in addition to the normal risks associated with investing in stocks. The reason is fluctuations in the value of the currency in other markets against the Indian rupee. You may invest in rupee; however, the fund house will have to take exposure to international stocks in various currencies. And any fluctuation will directly impact the Net Asset Value (NAV) of the fund. If the rupee depreciates against the dollar, NAV could be higher, and you will get more rupees for every dollar invested. Conversely, if the rupee appreciates against the dollar, earnings in rupees become less for every dollar spent.
It’s better to be vigilant of risks both in the home country and offshore location. The negative movement of currency value can counter even high gains.
Investment Horizon
Choosing a long-term investment horizon will be ideal for earning inflation-beating returns.
Taxation
Foreign funds come under debt. So, they will levy taxes on your fund as per mutual fund tax rules, just like a fixed-income fund. The offshore funds are usually established in countries that provide tax-efficiency to investors abroad. However, home countries may require their citizens and residents to pay taxes on their overall income, even if their income was generated in a foreign jurisdiction. The investors should study tax implications associated with their investment abroad thoroughly.
Costs
To manage the offshore fund, an AMC starts its operation in overseas jurisdictions with fewer investment rules, and that makes overall asset management costs less.
Therefore to conclude, always start with a smaller portion in the beginning, and investment must be made from an emerging market in a developed market and not in another emerging market. The funds that give high exposure to global opportunities are to choose other than those that are country-specific. Also, funds that are known to be financially stable and transparent in their transactions should be selected. The process of foreign investment has also been made easy these days.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh