The mutual fund industry did not find specific mention in the Union budget, yet

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it remains optimistic that the social development initiatives and income-tax benefits will increase disposable income of people, who will in turn put the money in different investment avenues, including mutual funds.

However, industry people believe the government’s plans to borrow Rs 4.5 lakh crore to fund budget spends will hit long-term bond prices and, hence, debt funds in some ways.

Jaideep Bhattacharya, chief marketing officer of UTI Mutual Fund, said social development initiatives, such as National Rural Employment Guarantee Act (NREGA) and tax exemptions, would guarantee more disposable income in the hands of the common man. “Over the past one year, consumers have reduced discretionary spending and instead focussed on savings. This trend along with the initiatives announced in the budget will lead to increased investment in mutual funds,” Bhattacharya said.

A Balasubramaniam, chief investment officer of Birla Sun Life Mutual Fund, said, “The overall direction for the economy will remain good, given the positive policy initiatives that can come from the government in the near future. This, combined with the improvement in the confidence level of Indian industry will keep the direction for equity investment intact. Therefore, investing in equity schemes should be rewarding in the next two to three years,” he added.

Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services, felt the budget rightly focussed on infrastructure spending, employment generation and on providing more money in the hands of consumers.

Industry experts say debt funds will be negatively impacted not only by the huge government borrowing programme, but also due to the high fiscal deficit of 6.8 per cent. The yield on the most-traded 6.07 per cent note due May 2014 surged 22 basis points to 6.45 per cent, the most since March 17. The price dropped 0.9 per cent, or 90 paise per Rs 100 face amount, to 98.43.

Saurab Nanavati, chief executive officer of Religare Asset Management Company, said the borrowing programme would not impact short-term bond funds but might hit debt funds investing in longer maturity bonds.

Nanavati said the sharp drop in the market was due to unrealistic expectation. He sees the Sensex dropping to 12,500-13,000 levels in the short term.

Lakshmi Iyer, head of fixed income and product at Kotak AMC, said, “Yield wise, we expect a stable interest regime to continue and, hence, short-term debt funds should be favoured by investors.”