Off-Shore Funds


1. What is it?

Off-shore funds basically invest resources in foreign assets, and they are even based outside the country, even though its manager is Brazilian-based. Thus, those funds are useful for investors who have money elsewhere, but want to increase their profits from getting opportunities anywhere, investing in foreign assets in general, American bonds, European shares and even Brazilian notes and bonds traded outside the country.

Investing in an off-shore fund is perhaps the easiest way of investing in foreign assets at low cost. It’s also a good way of diversifying investments, as it makes possible to buy several American shares, and well-known, such as Apple, Coca-Cola, and others. Moreover, these funds are also dramatically exposed to exchange rates, once most of the investments is actually made in dollars or euros, so exchange rates may either double profits or turn them losses.

As they are formally based elsewhere, off-shore funds are not subject to the same rules as most of the local funds, except for the exchange rate rules determined by the Central Bank. However, off-shore funds are always subject to the law of countries they are geographically based. That means either taxes or fees can change depending on the country a fund is based – custody fees can be much higher than in Brazil, for instance. At the same time, some countries provide a much lower tax incidence, or even exemption in some cases.

There are three main types of off-shore funds:

Fixed income Off-Shore

Their portfolio is concentrated in foreign fixed income assets, like Treasury Bonds and Government Bonds.

Variable income Off-Shore

The portfolio is concentrated in stock and shares at foreign stock exchanges, as well as in other variable income assets.

Combined Off-Shore

Portfolios contain both fixed and variable income assets.

2. Taxation

Taxes to be paid by off-shore funds depend completely on where they are geographically based. Some countries provide tax discounts or even exemptions. On the other hand, some countries charge taxes even higher than Brazil’s, even though profits can be also higher.

3. Advantages

  • Off-Shore funds are an easier way to invest elsewhere;
  • Diversification – possibility of investing in foreign shares;
  • Good prospects of profits.

4. Disadvantages

  • Off-shore funds usually require large amounts of money to invest;
  • Not backed by the guaranty fund;
  • Costs and taxes can compromise profits. Be aware about conditions and charges for investing elsewhere;
  • Exchange rates may affect negatively profits and performance of these funds;
  • Low liquidity for some assets.

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