Sebi introduces life-cycle funds with 5–30 year tenures, phased exit loads: What it means for investors

The structure is designed to align investments with specific financial goals by automatically shifting the portfolio mix over time

• SEBI launches Life Cycle Funds for long-term investing
• These funds shift asset allocation as target maturity nears
• Life Cycle Funds replace existing Solution Oriented Funds

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Capital markets regulator, Securities and Exchange Board of India (Sebi) has created a new category of mutual fund schemes called Life Cycle Funds, a move aimed at promoting disciplined, long-term investing through a pre-defined asset allocation strategy that becomes more conservative as the target date approaches.

According to the Sebi’s Categorisation and Rationalisation of Mutual Fund Schemes circular, issued on February 26, 2026, Life Cycle Funds will be open-ended schemes with a pre-determined maturity and a glide path for investing across multiple asset classes, including equity, debt, InvITs, exchange-traded commodity derivatives, and gold and silver exchange-traded funds.

The structure is designed to align investments with specific financial goals by automatically shifting the portfolio mix over time.

The tenure of these schemes will range from a minimum of 5 years to a maximum of 30 years, and funds can be launched in multiples of five-year maturities.

“Such a fund may be launched for tenures in multiples of 5 years, and a maximum of 6 funds by a  Mutual  Fund can be active for subscription at any given point in time. Additionally, as each fund reaches less than 1 year to maturity, such a fund may be merged with the nearest maturity Life Cycle Fund with positive consent from the unitholders,” per the circular.

Niranjan Avasthi, Senior Vice President at Edelweiss Mutual fund said posted on X, "The new Life Cycle Fund category replaces existing Solution Oriented Funds (Retirement & Children’s Funds)."

SEBI introduces Life Cycle Funds. A new Life Cycle Fund category replaces existing Solution Oriented Funds (Retirement & Children’s Funds). What are Life Cycle Funds? Life Cycle Funds will: •Have a defined target maturity ranging from 30 years to 5 years •Follow a…

— Niranjan Avasthi (@avasthiniranjan) February 26, 2026

For example, Life Cycle Funds can be organised with different target maturities, such as 30, 25, 20, 15, 10 and 5 years.

In the final years of the investment horizon, when the residual maturity drops below five years, the schemes will be permitted to take exposure to equity arbitrage of up to 50 percent, in addition to the prescribed equity allocation. However, the total exposure to equity and equity-related instruments must stay within the 65 percent to 75 percent range.

To promote long-term commitment and minimise early withdrawals, a graded exit load structure has been implemented. Investors exiting within one year will incur an exit load of 3 percent, which decreases to 2 percent if redeemed within two years, and to 1 percent if they exit within three years.

The schemes will adhere to the benchmark framework applicable to multi-asset allocation funds and must include the maturity year in their names, such as Life Cycle Fund 2045 or Life Cycle Fund 2055, to help investors easily identify the investment horizon.

Avasthi said for investors, it removes the static allocation problem of old retirement funds. "It aligns risk to life stage. Reduces emotional asset allocation decisions. Removes taxation issue in existing solution-oriented funds when investors switch funds to change asset allocation," Avasthi further said.