SEBI Scraps Retirement, Children’s Funds; Introduces Life Cycle Funds In Major MF Reset

New glide path structure for goal-based investing; tighter portfolio overlap norms for thematic and value-contra funds

In a major overhaul of the mutual fund framework, the Securities and Exchange Board of India (SEBI) has discontinued solution-oriented schemes such as retirement and children’s funds and introduced a new category called Life Cycle Funds.

The move is part of a broader reset aimed at rationalising scheme categories, reducing duplication, improving transparency and ensuring “true-to-label” investing.

Solution-Oriented Schemes Discontinued

SEBI has formally discontinued the solution-oriented category, which included retirement and children’s funds. Existing schemes in this category must immediately stop accepting fresh subscriptions.

These schemes will be required to merge with other schemes that have similar asset allocation and risk profiles, subject to regulatory approval.

What Are Life Cycle Funds?

Life Cycle Funds are open-ended mutual fund schemes with a predetermined maturity and a glide path strategy. They are designed for goal-based investing, where asset allocation automatically shifts over time as the target date approaches.

Under this structure, the portfolio gradually moves from higher-risk assets like equity to relatively lower-risk assets such as debt and other instruments as maturity nears.

SEBI has allowed Life Cycle Funds to invest across multiple asset classes, including equity, debt, InvITs, exchange-traded commodity derivatives (ETCDs), and gold and silver ETFs.

Tenure And Structure

Life Cycle Funds can have a minimum tenure of five years and a maximum of 30 years. They may be launched in multiples of five years — for example, 5, 10, 15, 20, 25 or 30 years.

A mutual fund house can have a maximum of six such funds open for subscription at any given time.

Each scheme must include its maturity year in its name — such as “Life Cycle Fund 2045” or “Life Cycle Fund 2055.”

If a fund is less than one year away from maturity, it may be merged with the nearest maturity Life Cycle Fund, subject to positive consent from unitholders.

Glide Path And Asset Allocation

The glide path structure ensures that asset allocation changes automatically based on the remaining years to maturity.

For funds with less than five years to maturity, equity arbitrage exposure of up to 50% is permitted, provided total equity and equity-related exposure remains within 65%–75%.

Life Cycle Funds will follow the benchmark framework applicable to Multi Asset Allocation Funds.

Exit Load Structure To Encourage Discipline

To promote long-term investing discipline, SEBI has introduced a graded exit load structure:

– 3% exit load if redeemed within one year
– 2% if redeemed within two years
– 1% if redeemed within three years

After three years, no exit load will apply.

Stricter Rules For Thematic And Sectoral Funds

SEBI has tightened portfolio overlap norms for thematic and sectoral funds. Portfolio overlap across thematic schemes — and with other equity categories except large-cap funds — cannot exceed 50%.

Funds have been given a three-year glide path to comply with this rule. Non-compliant schemes may need to merge.

This step aims to prevent multiple “themes” from holding largely identical portfolios.

Value And Contra Funds Allowed Together

In another significant change, SEBI has permitted fund houses to run both value and contra funds simultaneously. However, the portfolio overlap between the two cannot exceed 50%.

This ensures differentiation in strategy while allowing fund houses greater flexibility.

Greater Flexibility In Residual Allocation

SEBI has also expanded the scope of residual investments. Earlier, residual allocations were largely limited to debt instruments. Now, schemes can deploy non-core portions into gold, silver and InvITs, subject to regulatory limits.

This move formalises the industry’s shift toward broader multi-asset diversification.

Why This Matters For Investors

Market experts view the introduction of Life Cycle Funds as a major step toward structured, goal-based investing. The glide path mechanism reduces the need for constant portfolio rebalancing and helps align asset allocation with an investor’s time horizon.

The broader reforms aim to simplify scheme structures, reduce confusion and ensure clearer differentiation between categories.

For investors, the reset signals a shift toward greater transparency, stricter risk alignment and more disciplined long-term investing options.

Disclaimer: Mutual fund investments are subject to market risks. Investors are advised to read scheme-related documents carefully and consult a financial advisor before investing.