Understanding offshore mutual funds
What are offshore mutual funds?
Offshore mutual funds are professionally managed funds that are established and registered outside the United States and are only available to non-U.S. citizens and non-U.S. residents.
Offshore mutual funds are registered under the laws of non-U.S. jurisdictions, typically those with tax-advantageous benefits. Clients investing in these funds may see tax benefits and should refer to a tax advisor for more details.
Because of their potential tax benefits, offshore mutual funds can be a great option for non-U.S. investors wanting a diverse portfolio with professionally managed funds.
Understand the benefits and risks of offshore mutual funds.
- Offshore mutual funds are actively managed by experienced investment managers such as JPMorgan, Franklin Templeton, and PIMCO.
- Schwab waives sales loads, transaction fees, and commissions for purchases of offshore mutual funds.*
- Implement an array of strategies from conservative to moderate as well as sector-specific strategies such as industrials or finance.
- Potentially enjoy tax benefits from funds registered in tax-advantageous countries.
- Offshore mutual funds are subject to jurisdictional and country restrictions, which may mean that not every fund is available in every jurisdiction, and availability is subject to change at any time without notice.
- Investment techniques using financial derivative instruments may be used by some mutual funds with the aim of meeting the investment objective of the fund. Such investment policies or portfolio management techniques may lead to a higher volatility to the net asset value of the fund and can involve additional risk, including but not limited to counter-party default risk or insolvency.
- Additionally, offshore mutual funds are subject to political, economic, and currency instability risks in their respective jurisdiction of registration, as well as differences in financial accounting standards.
*Investment management fees and other expenses may still apply (see fund prospectus for more details).
Offshore mutual funds are not entirely exempt from taxation.
While offshore mutual funds are excluded from U.S. estate tax calculations (refer to U.S. IRS website for more details) and non-U.S. investors may be able to receive gains and income on their offshore mutual fund investment without deduction of U.S. withholding tax (per U.S. Internal Revenue Service (IRS) requirements, clients must establish their foreign status by having a valid, signed IRS Form W-8BEN certification on file at Schwab in order to be exempt from U.S. withholding tax), offshore mutual funds may not be entirely exempt from taxation.
Clients should carefully consider their own circumstances and the implications of taxation on their offshore mutual fund investments in their jurisdiction of residence. Rules on taxation are subject to change at any time and vary across jurisdictions.
Why invest in offshore mutual funds with Schwab?
Access to over 250 funds from around the world—ranging from emerging markets to established markets.
Screen for funds based on availability, category, rating, expense ratio, and more.
Our investment professionals can help you learn how to research funds based on your goal, time horizon, and risk tolerance.
View independent offshore mutual funds analysis from Morningstar® with easy-to-understand ratings.
- Who determines where funds are registered to be sold?
Similar to in the U.S., where mutual funds are registered on a state-by-state basis, offshore mutual fund families themselves determine which jurisdictions or countries their funds will be registered in and update their registrations to reflect where their funds may be sold. Schwab consumes this registration information through vendors like Morningstar and restricts purchase to clients residing only in those registered jurisdictions. Not every fund family is registered in every country or jurisdiction; the client's country of residence will determine the funds in which they are eligible to invest. Additionally, certain funds may only be available to specific investors such as high-net worth or institutional investors.
- Are offshore mutual funds registered in the U.S. under the Investment Company Act of 1940?
Offshore mutual funds are established and registered outside the United States and are not subject to U.S. regulations. Offshore mutual funds are however registered in jurisdictions like Ireland and Luxembourg and are subject to local European Union registration laws and regulations.
- Do offshore mutual funds settle next day like U.S. mutual funds?
Offshore mutual funds trade outside the U.S. markets and therefore have differing cut-off times and are subject to delayed trade date execution. Settlement will also be determined by the local markets where the fund is traded and not always conform to U.S. settlement timeframes.
- Why am I unable to purchase U.S. registered mutual funds?
The purchase of U.S. mutual funds by non-U.S. residents is restricted in order to comply with U.S. regulations. As a result of this, non-U.S. resident clients may only hold or redeem existing U.S. mutual fund share positions, initial or subsequent purchases are not permitted. Offshore mutual funds were added as a further investment opportunity for our international clients to diversify their portfolios.
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