The Securities and Exchange Board of India (SEBI) has introduced a new category of mutual fund schemes, termed Life Cycle Funds, designed to promote disciplined, long-term investing. These funds are structured with a predefined asset allocation strategy that becomes more conservative as the target date approaches. The aim is to align the investments with specific financial goals and gradually shift the portfolio mix over time, providing investors with a smoother risk transition as they approach their financial goals.
Key Features of Life Cycle Funds
As per the SEBI Categorisation and Rationalisation of Mutual Fund Schemes circular issued on February 26, 2026, Life Cycle Funds will be open-ended schemes with a defined maturity and glide path. These funds will invest across multiple asset classes, including equity, debt, InvITs, exchange-traded commodity derivatives, and gold and silver ETFs. The asset allocation is designed to adjust based on the fund's maturity period.
Life Cycle Funds Duration and Structure
The funds will have a minimum tenure of 5 years and a maximum of 30 years, with the option to launch them in multiples of five years. A maximum of six funds can be active for subscription by a mutual fund at any given point in time. When the fund’s maturity is less than one year, it may be merged with the nearest maturity Life Cycle Fund, provided the unitholders give their consent.
Understanding Asset Allocation of Life Cycle Funds with Different Maturity
The asset allocation in Life Cycle Funds will be structured according to the time remaining until maturity.
Here's an overview of the investment strategy based on the remaining years to maturity for Life Cycle Funds with various tenures:
For Life Cycle Funds with a Maturity of 30 Years
| Years to Maturity | Equity (%) | Debt (%) | Gold/Silver ETFs/ETCDs/InvITs (%) |
| 15-30 Years | 65-95 | 5-25 | 0-10 |
| 10-15 Years | 65-80 | 5-25 | 0-10 |
| 5-10 Years | 50-65 | 5-25 | 0-10 |
| 3-5 Years | 35-50 | 25-50 | 0-10 |
| 1-3 Years | 20-35 | 25-65** | 0-10 |
| < 1 Year | 5-20 | 25-65** | 0-10 |
For Life Cycle Funds with a Maturity of 25 Years
| Years to Maturity | Equity (%) | Debt (%) | Gold/Silver ETFs/ETCDs/InvITs (%) |
| 15-25 Years | 65-95 | 5-25 | 0-10 |
| 10-15 Years | 65-80 | 5-25 | 0-10 |
| 5-10 Years | 50-65 | 5-25 | 0-10 |
| 3-5 Years | 35-50 | 25-50 | 0-10 |
| 1-3 Years | 20-35 | 25-65** | 0-10 |
| < 1 Year | 5-20 | 25-65** | 0-10 |
For Life Cycle Funds with a Maturity of 20 Years
| Years to Maturity | Equity (%) | Debt (%) | Gold/Silver ETFs/ETCDs/InvITs (%) |
| 15-20 Years | 65-95 | 5-25 | 0-10 |
| 10-15 Years | 65-80 | 5-25 | 0-10 |
| 5-10 Years | 50-65 | 5-25 | 0-10 |
| 3-5 Years | 35-50 | 25-50 | 0-10 |
| 1-3 Years | 20-35 | 25-65** | 0-10 |
| < 1 Year | 5-20 | 25-65** | 0-10 |
For Life Cycle Funds with Maturity of 15 Years
| Years to Maturity | Equity (%) | Debt (%) | Gold/Silver ETFs/ETCDs/InvITs (%) |
| 10-15 Years | 65-80 | 5-25 | 0-10 |
| 5-10 Years | 50-65 | 5-25 | 0-10 |
| 3-5 Years | 35-50 | 25-50 | 0-10 |
| 1-3 Years | 20-35 | 25-65** | 0-10 |
| < 1 Year | 5-20 | 25-65** | 0-10 |
For Life Cycle Funds with Maturity of 10 Years
| Years to Maturity | Equity (%) | Debt (%) | Gold/Silver ETFs/ETCDs/InvITs (%) |
| 5-10 Years | 50-65 | 5-25 | 0-10 |
| 3-5 Years | 35-50 | 25-50 | 0-10 |
| 1-3 Years | 20-35 | 25-65** | 0-10 |
| < 1 Year | 5-20 | 25-65** | 0-10 |
For Life Cycle Funds with Maturity of 5 Years
| Years to Maturity | Equity (%) | Debt (%) | Gold/Silver ETFs/ETCDs/InvITs (%) |
| 3-5 Years | 35-50 | 25-50 | 0-10 |
| 1-3 Years | 20-35 | 25-65** | 0-10 |
| < 1 Year | 5-20 | 25-65** | 0-10 |
** Exposure in debt instruments shall be limited to AA & above rated instruments with residual maturity less than the target maturity of the scheme.
For years to maturity of less than 5 years, all Life Cycle Funds may take equity arbitrage exposure upto 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).
Exit Load and Financial Discipline
To encourage long-term investment, Life Cycle Funds will levy an exit load to promote financial discipline. The exit load will be:
- 3% for exits within the first year
- 2% for exits within the first two years
- 1% for exits within the first three years
Benchmarks for Life Cycle Funds
The Life Cycle Funds will follow a benchmark framework similar to the Multi Asset Allocation Fund, ensuring a consistent measure of performance.
Nomenclature
The name of each fund will include its maturity date, such as Life Cycle Fund 2055 or Life Cycle Fund 2045, making it easy for investors to identify the fund that best matches their target date.
In conclusion, Life Cycle Funds offer an innovative approach to investing by providing automatic adjustments based on the investor's goals and timeline. This structured approach to asset allocation is an excellent option for investors seeking long-term financial planning with built-in risk reduction as they approach their target date.
