Why Offshore Mutual Funds Are Better

One of the strongest enemies of each aggressive investor is his own government. It wants taxes, taxes and taxes again - it wants to take pie not only from your business/work income, but also from the profits of your investments^*. And that does not end here. The governments take taxes also from the mutual funds which make you money. So you are paying twice and thus getting much less returns that you could get.

These problems opened the market for Offshore Mutual Funds - mutual funds which allow you to earn return on your investment without paying huge taxes.

The Offshore Mutual Funds

The offshore mutual funds are tax free. How is that possible you may ask. It's really simple, because they are registered offshore, in tax free locations such as Bermuda, Channel Islands, Cayman Islands, Bahamas or Cyprus. These countries are kind enough to provide offshore zones which allow investors like you and me to achieve tax free opportunities.

However investors from high-tax countries like USA are still having problems, because SEC is everywhere for them. If you are from USA and want to invest in such mutual funds, you'll need to form your own offshore entity. Even in this case, you'll have to pay taxes on your investment income when you decide to withdraw your funds locally. However you are getting the advantage of the better ROI which those funds offer.

How are they making better ROI?

They don't follow some investing strategy which is specific for the offshore funds and different from the other kind of mutual funds. You can find offshore bond funds, equity funds, money-market funds, emerging-market funds, hedge funds, income funds, property funds and many more. They are not a specific kind of investment fund - they are specific only because they are offshore.

Here comes their secret - by avoiding paying government taxes they not only distribute more profits among investors. The funds also reinvest more (usually about 30% of the profits) and achieve even better results in longer term.

The best offshore mutual funds I have seen to be offered have achieved annual ROI of 30% - 40% for the last 5 years. I would say this is not bad at all.

Another advantage is that these funds usually have no big back office, because they serve most of their customers by phone or thru the Web. This adds more profits for distribution or reinvestment.

The Risks

Investopedia says: "Always be careful when investing your money in offshore accounts; they may be more prone to scams because of relaxed regulations in many offshore countries."

That is the main problem indeed. Because they are subject of much less regulation than the normal mutual funds, the offshore funds can easy turn to be scams or ponzi schemes. There is never 100% guarantee when investing in offshore mutual funds. But you can follow two common sense principles. Avoid funds that report too high return of investment or have any other suspicious activities. Choose only funds that are well known and established even if that means you'll miss some promising new one.

*In some countries the income from investing in financial markets, including mutual funds, is free of taxes.

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