Offshore Funds: Meaning, Risks and Powerful Benefits to Know

When it comes to investing, mutual funds are a popular choice for both new and experienced investors. They offer portfolio diversification and access to a wide range of asset classes. One such option is offshore funds—mutual funds that provide exposure to international markets.  

Typically managed outside the investor’s home country, these funds offer access to global stocks, debt instruments and emerging markets. Offshore funds not only help diversify your portfolio but can also deliver potentially higher returns.  

Ideal for investors willing to take on global market risks, they often come with the added benefits of professional management and possible tax advantages.

Understanding Offshore Funds 

The definition of offshore fund can be detailed as Investments funds registered outside an investor’s home country. Also called international mutual funds, they allow you to invest in foreign stocks or bonds. 

These funds offer diversification through global exposure. However, if marketed in India, they must follow Indian regulations. The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) oversee such investments.  

They are popular with Non-Resident Indians (NRIs) and individuals investing in multinational corporations. These funds involve a custodian, fund manager, administrator and broker—each approved by SEBI. Being open-ended, they allow buying or selling units anytime, with no lock-in period. 

Investment Process of Offshore Funds 

Indian investors can invest in offshore funds using Indian rupees by selecting a preferred fund. To begin the process, you can apply either online or through a fund house. The investment can be made by filling out an application form and making payment—either by issuing a cheque or paying online. 

You have the option to directly invest in overseas stocks and bonds or use the ‘feeder fund’ route. In the feeder route, investments are made into a domestic fund, which then channels the money into an international ‘master fund’ that holds a diversified pool of global assets. This method allows Indian investors to gain exposure to foreign markets without dealing directly in foreign currencies. 

Pros and Cons of Offshore Funds  

Offshore mutual funds have various advantages that make them an attractive option. The funds provide international exposure and offer financial and strategic benefits, potentially boosting returns. Some advantages of offshore funds are listed below: 

• You have the opportunity to invest in overseas markets. For instance, you can invest in top economies known for innovation, like Japan or the U.S., for technology. 
• By investing in different countries, you can minimise your risk and protect your portfolio from market volatility. 
• You can benefit from the robust performance in a foreign economy. This can be beneficial especially when the Indian market is facing challenging times. 
• Most offshore funds are based in tax-efficient countries, saving on taxes and growing your wealth. 
• When the rupee falls, overseas investments could increase in value which can benefit you. 

Offshore funds come with risks such as currency and fraud risks. Here are their limitations in detail: 

• You may lose value on your investment if the Indian Rupee strengthens against the foreign currency. 
• Your returns may be affected by sudden fluctuations in global markets where the fund is invested. 
• Offshore funds are subject to rules in India and the foreign countries. These may change and impact your capital gains. 
• You may face delays or restrictions when withdrawing your investment during market stress. 
• Some offshore jurisdictions can be weak, giving rise to chances of mismanagement or fraud. 
• These funds are better suited for long-term goals. This is because short-term investments may not cover inflation or deliver expected returns. 

Political or economic changes in either country can impact performance or lead to strict regulations. 

Things to Know Before Making Offshore Investments  

Offshore mutual funds have great potential, but intelligent planning can save you from unwanted risks.  

• The fund manager’s track record, Investment strategy and the legal regulations of the offshore country can greatly influence performance. 

• Tax reporting obligations and benefits under Indian and foreign tax treaties may differ and need to be clearly understood. 

• Starting with a small investment and increasing it gradually is a common approach to managing unfamiliar risks. 

• Offshore funds vary in risk and return. Comparing them with other available investment options helps in making balanced decisions. 

• Investing in funds that span multiple countries can reduce risk through greater diversification. 

• Transparency in fund holdings and operations is a key indicator of reliability. 

• Political and economic developments across the globe can impact offshore investments significantly. 

• The financial and political stability of the countries involved affects the overall risk level of the fund. 

• Funds offering broader international exposure tend to be less vulnerable to country-specific risks. 

• Reputable institutions with a transparent track record typically offer more reliable offshore investment options. 

Offshore funds invest in global markets, help you diversify portfolio and get potentially better returns. They come with risks like low liquidity and foreign market volatility. Still, their benefits make them a strong option to consider. Knowing how offshore funds work helps you invest and align with long-term goals. 

If you need funds to start your international investment venture, you can opt for a personal loan. With Fibe, you can apply for an instant personal loan of up to ₹5 lakhs with a complete 100% digital process. With a competitive rate of interest and a repayment tenure of up to 36 months, Fibe enables quick approvals, disbursals and zero foreclosure fees.  

So, why wait? Download the Fibe App and get funds to kick-start your offshore investment journey! 

Frequently Asked Questions  

What is the difference between onshore and offshore funds? 

Onshore funds operate within the investor’s domestic country and follow local laws. Offshore funds register outside the country in tax havens and follow international laws. 

Is an offshore fund a good investment? 

Offshore investing can prove to be a good investment as it can provide benefits like asset protection and higher returns. However, a good or bad fund investment option depends on individual choices and preferences.  

Who can invest in offshore funds? 

You can invest in offshore funds in a country/region in which you are not resident. It is legal to invest in these funds until gains or income arising are taxed within your country of residence. 

Is it safe to invest offshore? 

By investing offshore, you can minimise and diversify your risk, as well as hedge against a depreciating currency.