SEBI Launches Life-Cycle Mutual Funds: A New Long-Term Investment Option Explained
In a significant move aimed at strengthening goal-based investing, the Securities and Exchange Board of India (SEBI) has introduced a new mutual fund category called Life-Cycle Funds. The regulator issued a detailed circular on February 26, 2026, outlining the structure, features, and compliance requirements for these schemes.
This new category is designed to help investors systematically build wealth over the long term while maintaining investment discipline. Here’s a comprehensive look at how Life-Cycle Funds work, their structure, and what investors should know before investing.
What Are Life-Cycle Funds?Life-Cycle Funds are open-ended mutual fund schemes that follow a predefined asset allocation strategy. These funds are structured around a target maturity date, and the portfolio allocation gradually shifts as the target date approaches.
In the early years, the fund may maintain higher exposure to growth-oriented assets like equities. As the maturity date draws closer, the portfolio becomes more conservative, typically increasing exposure to lower-risk instruments. This gradual shift is designed to balance growth and capital preservation in alignment with long-term financial goals.
The core objective is to assist investors in meeting specific life goals—such as retirement planning or long-term wealth creation—through a structured and disciplined investment approach.
Investment Universe and Asset ClassesUnder SEBI’s guidelines, Life-Cycle Funds will be permitted to invest across multiple asset classes. These include:
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Equity shares
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Infrastructure Investment Trusts (InvITs)
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Exchange-traded commodity derivatives
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Gold Exchange-Traded Funds (Gold ETFs)
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Silver Exchange-Traded Funds (Silver ETFs)
By allowing diversified exposure across asset classes, the regulator aims to provide investors with a broader investment framework within a single scheme.
The tenure of Life-Cycle Funds will range from a minimum of 5 years to a maximum of 30 years. Importantly, schemes can only be launched in multiples of five years—such as 10, 15, 20, 25, or 30 years.
SEBI has also placed a cap on the number of active offerings. A mutual fund house can have a maximum of six Life-Cycle Funds open for subscription at any given time.
If a scheme has one year remaining before maturity, it may be merged into another Life-Cycle Fund with the nearest maturity date, subject to approval from unit holders. This provision ensures streamlined product management while protecting investor interests.
Replacement of Solution-Oriented FundsIndustry experts note that Life-Cycle Funds effectively replace the earlier solution-oriented fund category, which included retirement funds and children’s funds. The restructuring aims to simplify the product landscape and introduce a more standardized goal-based investment solution.
Additionally, when the remaining investment period falls below five years, the scheme will be allowed to take up to 50% exposure in equity arbitrage strategies. This exposure will be over and above the pre-determined equity allocation. However, the total allocation to equities and equity-related instruments must remain between 65% and 75%, ensuring the fund maintains its growth-oriented character.
To discourage premature withdrawals and promote long-term investing, SEBI has mandated a graded exit load structure:
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3% exit load if redeemed within 1 year
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2% exit load if redeemed before 2 years
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1% exit load if redeemed before 3 years
No exit load will apply after three years. This structure incentivizes investors to stay committed to their long-term financial plans.
Benchmarking and Naming ConventionLife-Cycle Funds will follow the same benchmarking framework applicable to multi-asset allocation funds. This ensures transparency and consistency in performance evaluation.
Importantly, each scheme’s name must include its maturity year—for example, “Life-Cycle Fund 2045” or “Life-Cycle Fund 2055.” This naming structure helps investors easily identify the target date and align it with their financial objectives.
Why This Matters for InvestorsThe introduction of Life-Cycle Funds marks a strategic shift in India’s mutual fund landscape. By combining diversified asset allocation, automatic risk adjustment, and long-term goal alignment, these schemes aim to simplify investing for individuals who prefer a structured, time-based strategy.
However, investors should carefully assess their financial goals, risk tolerance, and liquidity needs before investing. Consulting a certified financial advisor may help in determining whether a Life-Cycle Fund aligns with one’s long-term investment plan.
As SEBI continues to refine the regulatory framework for mutual funds, Life-Cycle Funds represent a structured approach to disciplined, goal-oriented wealth creation.