Securities and Exchange Board of India Unveils ‘Life Cycle Funds’ to Encourage Goal-Based Investing

The Securities and Exchange Board of India (SEBI) has rolled out a new mutual fund category called Life Cycle Funds, which will replace the existing Solution Oriented Funds. The move is aimed at instilling long-term financial discipline and simplifying goal-based investing for retail investors.

What Are Life Cycle Funds?

Life Cycle Funds are a new product class in India, broadly comparable to Target Date Funds popular in global markets. These schemes come with defined time horizons, typically 5, 10, 15, 20, 25 or 30 years, allowing investors to select a fund based on when they expect to need the money.

The distinguishing feature is a pre-defined glide path. In practical terms, this means the fund’s asset allocation gradually shifts from growth-oriented assets like equities to relatively stable instruments such as debt (and permitted exposure to gold or silver) as the maturity date nears.

SEBI has prescribed the allocation bands for equity, debt and precious metals across different maturities, and asset management companies (AMCs) must adhere strictly to these norms.

Understand Life Cycle Fund

Consider a 20-year Life Cycle Fund launched in 2026 and maturing in 2046.

• In the initial years, the fund may hold 70–90% in equities to capture long-term growth.
• By year 15, the allocation could moderate to around 40–60% equity.
• In the final year before maturity, equity exposure might reduce to 10–25%, with the bulk parked in debt instruments to preserve capital.

Despite having a defined maturity year, these funds remain open-ended, meaning investors can enter or exit at any time, subject to applicable exit loads as per regulatory guidelines.

Also Read: Securities and Exchange Board of India Panels Submit Agri Derivatives Review Report

What Makes Them Attractive for Investors?

The core idea remains goal-oriented investing, but the approach becomes more intuitive. Instead of choosing a fund labelled for “retirement” or “children’s education,” investors simply pick a maturity year that matches their financial milestones, such as 2040 for a child’s college expenses or 2055 for retirement.

One of the major advantages is the automatic rebalancing of assets within the fund. Investors no longer need to manually shift from equity to debt as their goal approaches.

Another important benefit is improved tax efficiency. Earlier, investors often switched between equity and debt funds to adjust allocation, potentially triggering capital gains tax. With Life Cycle Funds, these transitions occur within the same scheme, helping avoid such tax events.

The structure also addresses the problem of static allocation seen in older products. Risk exposure reduces progressively, aligning better with an investor’s changing life stage.

Additionally, these funds aim to curb behavioural mistakes, such as panic-selling during market corrections or chasing returns during rallies, by keeping the investment strategy rule-based and long-term focused.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.