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Offshore Mutual Funds
I. Introduction
III. Structure of Offshore Mutual Funds
IV. Regulation of BVI Mutual Funds -- The Mutual Fund Act 1996
V. Formation of a Mutual Fund
VI. BVI Mutual Fund FAQ
II(a). Benefits of an Offshore Fund
For an investment professional, a mutual fund is a vehicle that
enables more efficient use of existing research and investment
expertise and resources. As an additional product to market to
one's client base, the properly structured offshore fund offers a
number of features that distinguish it from a traditional mutual
fund:
A lower level of regulation makes it easier to establish
and administer the funds. Consequently, formation and operating
costs are significantly reduced. Lower costs means funds can be
offered at zero or low load and with competitive management fees
from the investor's point of view. Furthermore, greater flexibility
is generally available, in terms of both fund structure and the
investment portfolio.
Tax exempt status in the offshore jurisdiction enables the
fund to reinvest the approximately 30% taxes on profits and gains
that would otherwise be payable in high tax jurisdictions, without
the need to obtain investment company or similar status. Therefore,
taxes may be deferred until the investor receives a return on his
investment. (Tax advice should be sought in the jurisdictions of
the sponsor/manager and each investor to determine any potential tax
liability.)
No big back office operation is required, since all
administration, execution and shareholder relations can be
subcontracted out. Further, by having clients invest in a fund in
which they buy and hold shares rather than, for example, a
discretionary managed account, all of the contract notes, advices,
statements and other client transaction paperwork may be dispensed
with. Investors simply receive a monthly or quarterly NAV
certificate and annual or semi-annual financial statement.
All of these features contribute to make an offshore fund a viable
and attractive proposition for investment professionals in every
field and of all sizes. The cost efficiency of offshore funds also
means that a series of funds, custom designed for different client
needs or profiles, may be easily created.
II(b). Why the BVI
When choosing an offshore financial center in which to establish
and administer mutual funds, there are a number of factors to consider
both from the sponsor's and the investor's point of view:
Integrity is the key for both investors and sponsors investing
millions of dollars in or through a perhaps unfamiliar jurisdiction.
The BVI has a reputation second to none as a corporate domicile.
Regulation under the newly-in-force Mutual Funds Act 1996
("the Act") supports the integrity of the Territory's financial
services sector. The light handed regulatory scheme focuses on
ensuring that only fit and proper persons are involved in any
aspect of mutual fund operations in the BVI. Many offshore
jurisdictions regulate only funds over a certain size or distribution
and most do not specifically license the professionals involved.
The differentiated regulatory scheme under the Act covers all levels
of funds but is in no way burdensome to the sponsor or the fund in
its day to day operations. (See below for further details on the
Act's provisions).
Flexibility of structure is available, whether through an
International Business Company ("IBC"), Limited Partnership or Unit
Trust. The BVI has modern legislation governing each of these
entities. The statutes reflect modern economic realities and market
practices, for example: a) IBC's share capital can be denominated
in any currency or in multiple currencies, b) There is no limit to
the number, type or designation or rights of different classes of
shares which can be created, c) There are no restrictions on
borrowing powers or investment practices or policies, which are
limited only by what sponsors indicate to prospective investors,
d) minimum formality and speedy approval procedures allow funds to be
created quickly, once the structure, investment criteria and
prospectus have been finalized, and e) the US Dollar is the official
currency of the BVI and there are no exchange control or other
restrictions on the movement of funds.
Experienced, licensed professionals are available to undertake
all aspects of the establishment and administration of the fund.
This enables the sponsor to sub-contract all of the back office
functions with confidence and on a cost effective basis.
I. Introduction
III. Structure of Offshore Mutual Funds
IV. Regulation of BVI Mutual Funds -- The Mutual Fund Act 1996
V. Formation of a Mutual Fund
VI. BVI Mutual Fund FAQ
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