Experts anticipate the repo rate cut to happen in the monetary policy committee (MPC) meet in August. And once rate cuts start, lower bond yields will follow. And when bond yields go south, the bond prices would increase proportionately.
"The steps to keep inflation under check could provide enough headroom for the RBI to cut interest rates, which will help long-term bonds in 2024, "said Pankaj Pathak, head of fixed income at Quantum Mutual Fund.
Debt fund managers feel that through the Interim Budget 2024, the government has given positive signals for both long duration bond funds such as government securities (GSecs) as also for equity funds in general.
“We continue on the path of fiscal consolidation, as announced in my budget speech for 2021-22, to reduce the fiscal deficit below 4.5 per cent by 2025-26. The fiscal deficit in 2024-25 is estimated to be 5.1 per cent of GDP, adhering to that path,” said the finance minister. “The gross and net market borrowings through dated securities during 2024-25 are estimated at Rs 14.13 and Rs 11.75 lakh crore respectively. Both will be less than that in 2023-24. Now that the private investments are happening at scale, the lower borrowings by the Central Government will facilitate larger availability of credit for the private sector,” she added.
Alternative to debt mutual funds: From FY 2023-24 (April 1, 2023), the rules for taxation for debt mutual funds were revised. The government removed the benefit of LTCG indexation benefit at the time of sale of debt mutual funds. However, there are still two mutual fund schemes that are tax efficient and offer debt mutual fund like returns.