INTRODUCTION:
Offshore funds are mutual fund schemes that invest in overseas or international markets. They are also referred to as foreign funds or international funds. These schemes invest in equities of a foreign country or region, or fixed-income securities of foreign countries. Offshore funds are actively managed by fund managers, who along with the fund house’s board will decide on the investment avenues for the fund.  These funds invest in international markets either directly or have the option to invest in other funds in those markets. The latter way is called a feeder route and is in the form of a fund of funds.

BENEFITS OF INVESTING IN OFFSHORE FUNDS


Risks
 The rates, market movements, regulations, tax rules, and other happenings in both nations can affect your returns. Thus, you must be continuously monitoring the country’s progress and news. Any changes in government policies or regulations with respect to investments, industries, companies, etc., may impact the returns.

Negative Currency Movement
A negative change in currency value might impair the return on investment. Thus, it is important to carefully pick the countries in which you wish to invest.

TAXATION OF OFFSHORE FUNDS:

From a taxation standpoint, offshore funds are considered non-equity mutual funds.

Hence, if an investor earns short-term capital gains from these, the same will be taxable as per the applicable income tax slab.

Any long-term capital gains from this investment are taxable at 20% with indexation benefits or 10% without indexation benefits.

Fear of Double Taxation

In 2015, there was an amendment to the Income-tax law.

It stated that earnings from certain offshore funds could be claimed as tax exemption if the fund manager of the scheme is based out of India and certain other criteria of investment are met by the fund.

This came as a sigh of relief for investors who feared the possibility of double taxation on earnings from offshore fund investments.

 

CONCLUSION: These mutual fund schemes invest in foreign equities or fixed-income securities, providing exposure to multinational enterprises, global giants, and different economies. Before investing in offshore funds, it’s essential to thoroughly analyze the economic and political conditions of the target countries, start with a cautious allocation, prioritize funds with global exposure, and choose financially stable and transparent options. While offshore funds offer the potential for international diversification and attractive returns, prudent research and risk assessment are key to making informed investment decisions in this dynamic and globally interconnected financial landscape.