Divide portfolio between long-and low-duration funds

Two major events-the Union Budget of 2025 and the Reserve Bank of India's (RBI) monetary policy review-have taken place. Let's examine the outlook for debt mutual funds (MFS) following these developments.

- SANJAY KUMAR SINGH & KARTHIK JEROME

Twin boosts: Fiscal consolidation and rate cuts

The key positive from the Budget for debt markets is fiscal consolidation. The revised fiscal deficit estimate for 2024-25 stands at 4.8 per cent of gross domestic product (GDP), while the fiscal deficit for 2025-26 is estimated at 4.4 per cent of GDP.

"The government has significantly reduced the fiscal deficit in line with its guidance. It has also committed to reducing the debt-to-GDP ratio going forward," says Mahendra Kumar Jajoo, chief investment officerfixed income, Mirae Asset Investment Managers (India).

"The fiscal deficit estimate for next year of 4.4 per cent aligns with the glide path mentioned earlier during Covid when the deficit had increased," says Joydeep Sen, corporate trainer and author.

The monetary policy turned dovish with the first rate cut in nearly five years. "More rate cuts are likely going forward," says Pankaj Pathak, fund managerfixed income, Quantum Asset Management Company (AMC).

Higher US inflation risk