U.S. securities laws don't put prohibitions on investments by foreign investors, according the same protections that U.S. citizens get. However, from a practical standpoint, many companies that sell proprietary mutual funds to investors have internal restrictions preventing investors who can't provide a U.S. address from investing. In order to buy funds and other investments, foreign investors can use some alternatives to direct investment if they're available.
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Securities laws and foreign investors
The primary issue with foreign investors and mutual funds involves the interplay of securities laws in different countries. For investors who reside in the U.S., mutual fund companies feel comfortable relying on U.S. securities laws regardless of the nationality of the investor. For foreign investors who have U.S. addresses and want to buy mutual funds, many fund companies will require only that the investor also supply IRS Form W-8BEN, which certifies the foreign status of the beneficial owner of the mutual fund account.
When an investor resides abroad, however, mutual fund companies are less comfortable with the potential application of foreign securities laws. In fact, major fund companies restrict sales even to investors who are U.S. citizens but whose only address is abroad, citing concerns about whether the foreign jurisdiction would deem them to be doing business in that country and potentially raise compliance issues.
Alternatives for foreign investors
Fortunately, there are some other ways for foreign investors to invest in mutual funds. Often, mutual funds are available through brokerage accounts. If the broker is comfortable working with a foreign investor, then purchases through the account won't trigger issues with the mutual fund company.
The other alternative is that foreign investors can work with financial institutions in their home countries to gain access to mutual fund investments. Especially in countries that have close economic ties with the U.S., you can generally find financial institutions that can facilitate foreign investment.
The financial industry is full of rules and regulations that lead institutions not to allow customers to do things that are technically legal. Inviting foreign investors to buy U.S. mutual funds is one of those areas in which competing regulation leads to cautious behavior from mutual fund companies. If you're diligent, though, you can usually find ways to invest in the funds you want.
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