Brace for some volatility in international mutual funds

International funds seem to be coming out of the bad phase. The category which was reeling under the uncertainties of the US elections has started giving positive returns. International funds returned 1.21 per cent in one week, compared to -1.47 per cent in one month and -3.39 per cent in three months.

However, fund managers believe that these schemes are going to be volatile ahead of US Federal Reserve meeting to decide on the rate hike. They add that this shouldn’t deter investors in these schemes.

“While there is a possibility to witness increased volatility with upcoming Fed decision in December, company fundamentals and the economy are what matter most to the longer-term path for stocks,” said Anil Ghelani, SVP, DSP BlackRock Investment Managers.


Ghelani adds that anyone aspiring to build a global portfolio should necessarily have some allocation to US equities.

The recent data points in the US, including positive employment numbers and early signs of consumer wage growth, indicate that the economic growth is picking up. Ghelani also says that the increased confidence in the relative economic strength of the US could result in greater demand and stronger flows into US equities.

However, investors should remember that international funds are mainly meant for geographical diversification. The idea is to put some money in stocks in the overseas market, so that you are not just at the mercy of the Indian market.

However, there are many critics who believe that it is foolish to invest in a developed market as it will not offer as much returns as a developing market like India. There is some merit in this argument.

Finally, if you are investing in international funds, be very clear that your first objective is to diversify your portfolio. You should also temper down your return expectations.