SEBI Life Cycle Funds Explained: Features, Glide Path & Investor Benefits

In what is being seen as a landmark move, India’s market regulator SEBI has announced a new category of mutual fund schemes named ‘Life Cycle Funds’. This comes nearly a year after SEBI introduced SIFs (Specialised Investment Funds) to bridge the gap between mutual funds and Portfolio Management Services (PMS).

And now, in a recent circular, SEBI has introduced this new category of mutual funds ‘Life cycle funds’, which will be separate from the existing scheme categories like Equity, Debt, Hybrid, FOFs (Fund of Fund Schemes) and Passive Schemes like Index Funds and ETFs¹.

But how will this new category work? Let’s unfold the details of Life Cycle Funds for you.

SEBI Introduces Life Cycle Funds

Life cycle funds are open-ended funds with a predetermined maturity (tenure) and a ‘glide path’ strategy which allows goal-based investing. These schemes will invest across different asset classes such as equity, debt, InvITs, ETCDs (Exchange-Traded Commodity Derivatives), gold and silver ETFs.

Here are the key features of life cycle funds which the SEBI has proposed in its introductory circular:

1. SEBI has mentioned that the tenure of life cycle funds can range from 5 years to 30 years.  The  fund  can  be  launched  for  tenures  in  multiple  of  5  years  and  a maximum  of  six  funds  by  an AMC  can  be  active  for  subscription  at  any  given  point  in time. 

2. Additionally, as each life cycle fund reaches less than 1 year to maturity, it can be merged with the nearest maturity Life Cycle Fund with positive consent from the unitholders.

3. The asset allocation for life cycle funds needs to be in the following manner, indicating a higher equity exposure initially when the maturity is far away, and an automatically reducing equity exposure as the maturity approaches nearer and nearer:

*SEBI has also specified that ETCDs (Exchange-Traded Commodity Derivatives) shall be based only on Gold or Silver.

**SEBI has specified that exposure in debt instruments shall be limited to instruments with credit rating of AA & above, and with residual maturity less than the target maturity of the scheme. 

4. To  inculcate  financial  discipline  in  life  cycle  funds, SEBI has put in place an exit  load  of  3%, to be chargeable on any exit by an investor within one year of investment. Whereas the exit load will be 2% within the first two years of investment and 1% in the first three years of investment.

5. SEBI has also specified in the circular that Life  Cycle  Funds  should follow the benchmark framework  as prescribed for  the category of Multi  Asset  Allocation Funds, a category of hybrid mutual funds. 

6. If years to maturity are less than 5, SEBI has mentioned that all Life Cycle Funds can take equity arbitrage exposure up to  50%  in  addition  to  the  investment  range  specified  for  equity  while  ensuring  that  total investment in equity and equity related instruments remains within 65%-75% in such schemes (as defined above).

7. Last but not the least, SEBI has mentioned that Life Cycle Funds should include the maturity date in the nomenclature of the scheme, for example: a fund maturing in the year 2055 should be named ‘Life Cycle Fund 2055’, a fund maturing in the year 2045 should be named ‘Life Cycle Fund 2045’, etc.

How Can Life Cycle Funds Help Investors?

The introduction of life cycle funds comes with the discontinuation of ‘solution oriented’ schemes by SEBI. While it's not directly a replacement category, life cycle funds have the similar core idea of goal-oriented investing, but the approach this time solves issues like alignment of risk with life stages and manual allocation adjustments across asset classes.

But how does this help you as an investor? Let’s assume you have 30 years to retire. For your retirement corpus, you decide to invest in the 30 year life cycle fund. Now during this 30 year tenure:

For the first 15 years, upto 95% of your investment can be put into equity, 5%-25% into debt, and upto 10% in other asset classes like gold, silver and InvITs.

For the next 10-15 years, the equity allocation will reduce to upto 80%, while the debt and other asset classes will have the same proportion range.

For the next 5-10 years, the allocation in equity will further drop to upto 65%, while the debt and other asset classes will have the same proportion range.

Then as you approach the last 3-5 years, equity allocation will drop to upto 50%, while the debt allocation will increase to 25%-50%. Other asset classes will continue to have the same allocation of upto 10%.

For the last 1-3 years, the equity allocation will be reduced to upto 35%, while debt allocation will be increased to upto 65% as you approach nearer to your maturity. Other asset classes will continue to have the same allocation of upto 10%.

Lastly, when you are less than 1 year away from maturity of 30 years, equity allocation will fall to just upto 20%, debt allocation will continue to occupy the majority portion of upto 65%, while other asset classes like gold, silver and InvITs will continue to have the same allocation of upto 10%.

So the farther you are from your maturity, the higher your equity allocation is in these life cycle funds, and the nearer you get to your goal, allocation to equity reduces and to debt increases.

Now this example was for one life goal. SEBI’s life cycle funds will have maturity of 5 years, 10 years, 15 years, 20 years and 25 years as well. So even if you have some other goal which is 5 years away or 10 years away, you can invest in these funds. 

Conclusion

Life cycle funds indeed seem to be an exciting move by SEBI, as it will help investors automatically align asset allocation with their life goals. This goes on to reduce behaviour risk and timing errors, as its the mutual fund scheme’s fund manager who will be doing all the rebalancing and not you. All you need to do is pick your investment horizon and fund, that’s it. But nonetheless, factors such as cost structure, benchmarking clarity, return expectations, taxation, etc would also play a role in how this new category unfolds for investors. Till then, investors need to wait and watch as AMCs begin introducing life cycle fund schemes in the coming months.

FAQs

1. What are SEBI Life Cycle Funds?

Life Cycle Funds are a new category of open-ended mutual fund schemes introduced by SEBI. They have a fixed maturity (5–30 years) and follow a glide path strategy where equity exposure reduces automatically as the maturity date approaches.

2. How is asset allocation managed in Life Cycle Funds?

These funds start with higher equity exposure when the goal is far away and gradually shift toward debt as maturity nears. Allocation ranges are predefined by SEBI for each maturity bucket.

3. Are Life Cycle Funds suitable for retirement planning?

Yes, they are designed for goal-based investing such as retirement. Investors can choose a fund aligned with their target year, and the asset allocation adjusts automatically over time.

4. What are the exit load rules for Life Cycle Funds?

SEBI has mandated a graded exit load structure: 3% if redeemed within one year, 2% within two years, and 1% within three years of investment.

References:

1. SEBI, accessed from: https://www.sebi.gov.in/legal/circulars/feb-2026/categorization-and-rationalization-of-mutual-fund-schemes_99983.html

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