New Category With Defined Tenures

The Securities and Exchange Board of India has launched Life Cycle Funds as a new product category for mutual funds. These schemes will replace the existing Solution-Oriented Funds, which include retirement and children’s funds.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

According to SEBI’s circular, Life Cycle Funds will have defined maturities of 5 years, 10 years, 15 years, 20 years, 25 years, or 30 years. The schemes will follow a pre-defined glide path, under which the asset allocation will shift gradually from equity-oriented investments to debt-oriented instruments as the maturity date approaches.

SEBI has prescribed the asset allocation pattern in equity, debt, and gold or silver for different maturities, and the asset management companies (AMCs) will have to stick to these limits. For instance, a 30-year Life Cycle Fund will begin with 65%-95% allocation to equity, which will reduce to 5%-20% equity in the final year of the scheme, as per the regulatory framework.

Structure And Naming Norms

Despite having a specified maturity date, Life Cycle Funds will be open-ended schemes. Investors will be allowed to subscribe or redeem units on an ongoing basis, subject to exit load provisions laid down by SEBI.

Each AMC can offer a maximum of six active Life Cycle Funds at any point in time. The maturity year must be included in the scheme name. For example, a fund launched in 2026 with a 5-year tenure would mature in 2031 and carry the maturity year in its name.

Impact On Existing Solution-Oriented Funds

Solution-oriented funds currently comprise 29 retirement funds and 15 children’s funds, with a combined assets under management of about ₹51,000 crore, according to industry data. These schemes delivered an average return of 12% over the past year, as per mutual fund performance disclosures.

SEBI’s framework provides for exit loads of 3% if units are redeemed within one year of investment, 2% if redeemed within two years, and 1% if redeemed within three years.

With the introduction of Life Cycle Funds and prescribed asset allocation norms, mutual fund houses will transition from the earlier solution-oriented structure to schemes with defined maturities and glide paths in line with SEBI’s regulatory directions.