SEBI Allows Continuation Of Retirement, Children’s Funds With Limits On Life Cycle Schemes

The Securities and Exchange Board of India (SEBI) has permitted mutual funds to continue offering retirement and children’s schemes, while placing restrictions on the launch of certain life cycle funds, according to its Master Circular dated March 20.

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The clarification follows concerns raised by the mutual fund industry after SEBI’s February 26 circular on categorisation and rationalisation of schemes proposed discontinuation of solution-oriented funds.

Restrictions On New Life Cycle Funds

Under the updated framework, asset management companies (AMCs) that choose to continue existing retirement or children’s schemes will face limits on launching specific life cycle funds.

If an AMC retains a children’s fund, it cannot introduce a 20-year life cycle fund. Similarly, AMCs continuing retirement funds are restricted from launching 30-year life cycle funds. If both categories are retained, AMCs will be allowed to launch only four life cycle tenures - 5, 10, 15 and 25 years.

AMCs that discontinue both retirement and children’s schemes can offer the full range of six life cycle funds, including 5, 10, 15, 20, 25 and 30-year tenures. In such cases, fresh subscriptions to legacy schemes must be stopped, and the schemes must be merged into other funds with board approval.

Industry Representation And Regulatory Review

The Association of Mutual Funds in India (AMFI) indicated in March 2026 that it intended to take industry concerns over the termination of solution-oriented funds to SEBI's notice. SEBI Chairman Tuhin Kanta Pandey had also stated that the regulator was reviewing feedback from stakeholders.

Life Cycle Fund Framework

SEBI has specified that life cycle funds are open-ended schemes with maturity-linked fund tenures ranging between 5 to 30 years. Such funds will invest in equity, debt, gold, and silver ETFs, infrastructure investment trusts, and exchange-traded commodity derivatives.

For instance, for a life cycle fund with a tenure of 30 years, the equity segment may vary between 65% to 95% in the beginning, reducing to a range between 5% to 20% in the last year. The debt segment may vary between 5% to 25% in the beginning and then between 25% to 65% in the last year. The gold, silver ETFs, InvITs, and commodity derivatives may vary between 0% to 10%.

The debt segment should invest in AA-rated debt with maturity matching the tenure of the fund. For schemes with a tenure of less than 10 years, equity arbitrage up to 50% may be invested in the funds.

Exit Load And Naming Norms

To promote long-term investments, SEBI has made it mandatory for mutual funds to impose exit load charges of 3% on redemptions within a year, 2% within two years, and 1% within three years.

Life cycle funds must also follow benchmarking norms applicable to multi-asset allocation funds and include the maturity year in their names, such as “Life Cycle Fund 2045.”

The latest clarification allows continuation of existing schemes while aligning new product launches with SEBI’s revised framework for long-term investment products.