SEBI replaces retirement funds with smarter glide-path model: Edelweiss MF’s Niranjan Avasthi

The Securities and Exchange Board of India (SEBI) has unveiled sweeping reforms in the mutual fund industry, introducing a new category called Life Cycle Funds and overhauling the structure of Fund of Funds (FoFs) as part of a broader push to ensure schemes remain “true-to-label.” The changes, notified through a circular dated 26 February 2026, aim to enhance product transparency, reduce overlap, and align investment strategies more clearly with investor expectations.

Life Cycle Funds 

At the heart of the reform is the formal introduction of Life Cycle Funds — open-ended schemes with a defined maturity period and a glide-path asset allocation model. These funds are designed for goal-based investing, automatically adjusting their equity and debt mix as they move closer to maturity.

Under the framework, Life Cycle Funds can be launched with maturities ranging from five to 30 years, in increments of five years. The scheme name must mandatorily include the maturity year — for example, “Life Cycle Fund 2045” — to make the time horizon and evolving risk profile immediately clear to investors.

Glide path mechanism

The glide path mechanism ensures that equity exposure is highest in the early years of the fund and gradually reduces as the maturity date approaches, with a corresponding increase in debt and safer instruments. Depending on the tenure, equity allocation in the initial years may range between 65% and 95%, tapering off systematically over time.

Niranjan Avasthi, Senior Vice President at Edelweiss Mutual Fund, described the move as a structural shift. “SEBI introduces Life Cycle Funds. A new Life Cycle Fund category replaces existing Solution Oriented Funds such as retirement and children’s funds,” he said. “These funds align risk with life stage, remove the static allocation problem of old retirement products, and reduce emotional asset allocation decisions.”

The new category effectively replaces the earlier “solution-oriented” schemes, including retirement and children’s funds. Existing schemes in this category must halt fresh subscriptions and merge with similar schemes after regulatory approvals.

Life Cycle Funds structure

To encourage long-term investing discipline, SEBI has mandated a graded exit load structure for Life Cycle Funds — 3% if redeemed within the first year, 2% in the second year, and 1% in the third year. This structure is intended to discourage premature withdrawals and maintain portfolio stability.

Life Cycle Funds may invest across multiple asset classes, including equity, debt, Infrastructure Investment Trusts (InvITs), exchange-traded commodity derivatives (ETCDs), and gold and silver ETFs. However, an Asset Management Company (AMC) can have only six Life Cycle Funds open for subscription at any given time.

New classification

Beyond the new category, SEBI has retained five core mutual fund buckets — Equity, Debt, Hybrid, Life Cycle Funds, and Other Schemes (including Index Funds, ETFs, and FoFs). Within these, minimum allocation thresholds have been reaffirmed. Multi-cap funds must invest at least 75% in equities with equal minimum allocations to large-, mid-, and small-cap stocks, while large-cap funds must maintain 80% exposure to large-cap equities. Debt funds continue to be classified by Macaulay duration bands.

SEBI has also tightened rules around scheme naming and portfolio overlap. Scheme names must align strictly with their categories and avoid return-focused phrases. Portfolio overlap among sectoral and thematic equity funds has been capped at 50% relative to other equity schemes, with a three-year glide path for compliance.

The regulator’s overarching objective is to streamline product offerings, reduce duplication, and improve comparability across schemes. By redefining classifications and embedding lifecycle-based investing, SEBI aims to modernise the mutual fund landscape while reinforcing clarity and investor protection.