MF Rules Reset: SEBI Cancels Solution Funds, Launches Life Cycle Funds and Tightens Thematic Rules

On February 26, 2026, SEBI issued a circular that reshapes mutual fund categories by ending solution‑oriented schemes, creating life cycle funds and imposing stricter overlap limits on thematic and value funds. 

Key Changes in SEBI Mutual Fund Regulations 

The circular directs that all existing solution funds stop subscriptions immediately and merge with comparable schemes after approval. It also defines a new life cycle fund category with tenures ranging from 5 to 30 years and a glide‑path that reduces equity exposure as maturity approaches.  

Additionally, portfolio overlap between thematic, sectoral and other equity categories is capped at 50%. 

Discontinuation of Solution Oriented Schemes 

Solution funds that targeted retirement or children’s goals are no longer permitted. Investors holding such schemes will see their assets transferred to broader equity or debt funds, reducing the number of goal‑labelled products in the market. 

Read More: ₹455 Lakh Crore AUM Milestone Ahead: India's Managed Funds AUM Set to Double by 2030! 

Introduction of Life Cycle Funds 

Life cycle funds follow a glide‑path strategy across equity, debt, gold, silver ETFs and InvITs. The asset mix automatically shifts towards lower risk as the fund approaches its stated maturity, providing a disciplined allocation without active rebalancing by investors. 

Expanded Residual Investment Options 

SEBI now allows the non‑core portion of a fund’s portfolio to be invested in gold, silver and InvITs, subject to regulatory limits. Previously, residual assets were restricted to debt instruments only. 

Overlap Limits for Thematic and Value Funds 

Both thematic and value/contra funds may operate simultaneously, but the overlap between their holdings cannot exceed 50%. This rule also applies to overlap between thematic funds and other equity categories, except large‑cap funds, and will be enforced over a 3‑year compliance period. 

Conclusion 

The regulatory overhaul eliminates solution‑focused products, introduces life cycle funds with built‑in risk adjustment, broadens residual asset choices and enforces a 50% overlap ceiling for thematic and value strategies. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or 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. 

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.