What are Offshore Funds?

Want to learn about Offshore Funds? Offshore funds are mutual funds schemes that invest in foreign markets. Offshore funds are also known as international funds. These schemes invest in fixed income securities or equities of a foreign country or region.

In India, there are different schemes like region-specific schemes, country-specific schemes, and thematic schemes. For instance, many mutual funds schemes invest in international markets like the US, Brazil, or Europe. In addition to that, other types of funds are based on the theme, generally investing in sectors such as energy, gold, consumption, and real estate.

Investors who are residents of India have to invest in these schemes in Indian rupees only. Like any other available mutual fund, they need to select the fund they want to invest in, write a cheque, and submit the application to the fund house. Or they can invest online as well.

Where Do Offshore Funds Invest Funds?

These funds collected from investors either invest directly in the International market or invest in other funds of the foreign market. The latter way is known as a feeder route. It is kind of a fund in other funds.

Advantages of Offshore Funds

There are many businesses or stocks which are not listed in India. Examples of a few are IT giants and Cola Companies. Investors can be a part of their growth stories via international funds, giving them an option of diversification across geographies. For example, global markets may provide better returns when the performance of the Indian economy is not good.

Disadvantages of Offshore Funds

Investors need to keep in mind apart from normal risks associated with investing in stocks; offshore funds come with currency risks. It usually happens due to other markets’ currency value fluctuation against the Indian rupee. While investment takes place in the rupee, the fund house has to expose international equities in different currencies. So, Investors need to be a little more prepared for currency risk because any minor fluctuation will directly impact the fund’s NAV (Net Asset Value).

For example, if there is depreciation in the value of the rupee against the dollar, investors will get more rupees for every dollar invested, and the NAV of the fund could be higher. Whereas if the rupee appreciates against the dollar, investors will be paying fewer rupees for every dollar invested.

These days Offshore funds are the talk of the town because of the rising popularity of multiple mutual fund investors recommending offshore funds. They believe that developed nations like the US will recover quickly from the disruption caused by COVID-19 compared to other countries.

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