A mutual fund that is based in an offshore jurisdiction, which is generally considered to be outside the United States. The term is often used, perhaps incorrectly, to describe a fund that is not in a high-tax country.

Watch: Mutual Funds

Always be careful when investing your money in offshore accounts that have sponsors that are not well known and/or are located outside of established financial centers such as London or Hong Kong. Non-mainstream offerings may be more prone to scams because of relaxed regulations in some offshore locations.

Offshore funds offer a number of features that distinguish them from those domiciled in the U.S., as a lower level of regulation makes it easier to establish and administer the funds. Consequently, operating costs are significantly reduced and management fees can be lower. Tax exempt status enables the fund to reinvest gains that would otherwise be taxable in high-tax areas.