It's common for local investors to own US stocks or at least have the potential to, because many brokerages offer US trading, but I've never heard of locals investing in US-registered mutual funds directly.
From reading around it seems that it should be possible. For US trading we already submit a W8-BEN to declare to the IRS that we are non-resident aliens (not US citizens and not residing in the US), and according to the second site below, if that is all the US-based income we get, we don't even have to file the non-resident tax return 1040NR. The 30% withholding tax on dividends applies as it does to stocks, but there is no capital gains tax.
How to Invest in US Mutual Funds for Non-US Residents | eHow
Nonresident Aliens
That is the legal side. This is the message that pops up when I tried to open an account with Vanguard US:
Nonresident alien status
Due to your nonresident alien status, you can't open an account online.
To open a Vanguard account:
- Complete and send an account registration form to us by mail. You can access the form in our Forms & Literature area.
- Include a signed IRS Form W-8 with your completed forms to certify your foreign status.
Contact us if you have any questions.
I think it is much easier to buy index funds through ETFs provided by iShares, Vanguard or SPDR. It's true that transaction costs will be higher because of brokerage commissions. To minimize that you'd have to make bulk purchases infrequently, but then you will lose the ability to for example do DCA every month.
