Offshore investing: Here’s what you need to know

Are you thinking about investing offshore but not too sure what it means or whether it’s a good idea? At Prudential, we believe that offshore investments are a great addition to just about any portfolio.

The basics

Offshore investing can be thought of as an investment that is directly linked to the performance of markets, currencies and companies located (and listed on a stock exchange) outside of South Africa. While there are a number of good reasons why investors look to go this route, the more common ones include:

• Diversification (where you get exposure to a wide selection of companies and markets currently underrepresented on our local stock exchange);
• Currency hedging (where your offshore investment protects you against rand volatility); and
• Supplementing your investment goals that require foreign currency, like an overseas holiday or retiring abroad.

In terms of your investment options, you have two approaches to choose from, namely: investing directly in a foreign currency or investing indirectly in rands. 

Investing directly in foreign currency vs. indirectly in rands

Investing directly offshore in a foreign currency involves going through exchange control regulations and physically transferring your money offshore into the base currency of your chosen fund. South Africans can take a maximum of R11 million a year offshore – you will need a SARS tax clearance certificate for R10 million of this amount. Without a tax clearance certificate, you’re limited to R1 million a year.

If you invest directly offshore, you will receive foreign currency when you sell your investment.

If you decide to invest offshore indirectly using rands, your investment will go into a rand-denominated fund accredited in South Africa that feeds into either a single offshore fund (as in the case of a feeder fund) or into several different offshore funds (as in the case of a fund of funds).

One of the benefits of going this route is that it allows you to hold offshore assets without converting your money into a foreign currency, which makes it less admin-intensive as you won’t need exchange control approval from SARS. Also, there is no limit to how much you can invest.  When you sell out of these funds, you will receive rands.

How Prudential can help

At Prudential, we have a range of US-dollar denominated offshore funds as well as rand-denominated offshore feeder funds for you to choose from. Each fund has been specifically designed with the South African investor in mind, with the idea of complementing their existing local investment portfolio (by broadening their exposure to sectors, markets and industries currently underrepresented on the local exchange) and not duplicating it.

Of course, before investing in any fund (local or offshore), it’s important do some level of due diligence and have a good understanding of how your chosen fund works, the risks involved and whether it’s best suited to your investment objectives. To help you with this, try out our fund selector tool on our website, or speak to your financial adviser.

For more information, we encourage you to watch a short video where Rushil Jaga, one of our Investment Specialists, answers some frequently asked questions about offshore investing. Alternatively, please contact your financial adviser or speak to our Client Services Team on 0860 105 775 or email us at query@prudential.co.za.

Watch our video about offshore investing

Contact Prudential using the form below: