About Offshore Investment Funds

Funds offer the investor an affordable way to access a wide variety of professionally managed investments; in fact the benefits of mutual funds, offshore investment funds and even their onshore equivalents are manifold.

This article will discuss the important differences between the different types of fund available and the associated benefits of each.

Investment Funds

This type of investment vehicle allows the investor to pool their money with other subscribers (also known as unit or share holders) for greater investment purchasing power.  The investment fund is established and marketed by the promoter, it is professionally managed on behalf of the investors by the fund manager and a custodian effectively holds the assets within the fund on behalf of the investors.  Profits and losses are shared between investors proportionally based on the percentage of their subscription to the fund, and all three bodies involved in the administration and management of the fund are paid by the investors based on the value or success of the fund.

Mutual Funds

Mutual funds - which are also referred to as unit trusts - are a form of investment fund that often benefit from beneficial taxation treatment in the country in which they are established - this is generally in an attempt to promote personal saving.  The way a mutual fund works is an investor buys and sells units or ‘shares’ of the fund from the manager - almost like trading, and the net asset value (NAV) of the fund per unit is calculated on a regular basis.  Many of the European mutual funds available adhere to the EU UCITS Directive which is a central form of regulation.  UCITS stands for “undertakings for collective investment in transferable securities” and funds that adhere to it can only invest in companies which are listed on public stock exchanges but they can then market their funds throughout Europe.

Offshore Investment Funds

These funds are structured in the same way as their onshore equivalent but they are based offshore - or at least based outside high taxation countries like the US for example.  The benefit of an offshore investment fund over its onshore equivalent usually comes down to regulation.  For an onshore fund to qualify for promotion in high taxation jurisdictions it generally has to be highly regulated and only invest in the least volatile sectors of a given market for the protection of the fund’s investors - naturally enough this places a certain restriction on fund potential.  Offshore investment funds escape this heavy regulation and restriction and as a result such funds come in many flavours from income, bond, capital equity, property, money and emerging-market funds etc., and they offer far greater potential for growth and returns but can be riskier and more volatile.

There are six general advantages associated with investing via funds, namely affordability, regulation, tax benefits, diversification, variety and professional management. Let’s examine each one in turn.

Affordability - by pooling money with other investors via an investment fund, purchasing power is increased.  The investor therefore has potential exposure to a far broader portfolio of investments than would otherwise be affordable with his level of investment commitment.

Regulation - depending on the type and jurisdiction of fund the investor selects they will benefit from a certain guaranteed level of regulation.  For those with low risk tolerance who choose to invest via an onshore investment fund or a UCITS mutual fund they will benefit from the greatest levels of regulation and investor protection.

Tax benefits - there are significant taxation benefits associated with offshore investment funds - they can grow tax free, income or profits can be realised without the deduction of tax at source etc., but there are also tax breaks sometimes offered to those who invest via mutual funds as well.  Often the government in the country where the mutual fund is based is keen to promote personal saving and investing and will offer tax incentives to those who take the investment initiative.

Diversification - the key to successful wealth management and in the fight against risk is diversification.  By investing via an investment fund your money can be invested across different sectors, securities and/or asset classes thus offering more potential stability within your investment portfolio.
Variety - not only can you invest in a variety of different securities via one investment fund, you can invest in a wide variety of fund types as well to satisfy your risk profile, requirements and investment appetite.

Professional management - fund managers are skilled in the art of assessing, projecting and reacting to market conditions, they are professional investment managers and will apply their unique skill for the direct benefit of each investor within the fund…after all, they are usually paid on performance therefore it is in their best interests to offer the very best management of your investment fund.

If you’re interested in finding out more about the best funds currently available please contact us with your requirements and we’ll seek to find the most applicable investment vehicles for your personal requirements.