Retirement and children's funds are closed to new money. Life cycle funds take their place
SEBI shut the retirement and children's fund category in February. Its replacement, the life cycle fund, now has seven schemes. Each moves from shares to bonds on a fixed timetable, and its tax can change with it.
A life cycle fund carries its maturity year in its name and holds less equity as that year nears, on a timetable SEBI set on 26 Feb 2026. AMFI listed seven schemes on 27 Oct 2026. Exits cost 3%, 2% or 1% of the amount in the first three years. When listed Indian shares fall below 65% of the fund, its gains stop being taxed as an equity fund's.
Was this forwarded to you? Sign up to get Compound in your inbox.
On 26 Feb 2026, SEBI rewrote how mutual fund schemes are grouped. One category, solution oriented schemes, was discontinued that day. It held the retirement funds and children's funds.
Those schemes had to stop all subscriptions at once. They will be merged into other schemes with a similar asset mix, with SEBI's approval. AMFI's NAV file for 27 Oct 2026 still lists them, with daily NAVs, under the old heading.
The same circular created a new category, the life cycle fund.
1. What a life cycle fund is
A life cycle fund is an open-ended fund with a maturity date. It spreads money across:
- equity
- debt
- gold and silver ETFs, and gold and silver derivatives
- InvITs, listed trusts that own assets such as roads and power lines
The year it matures is part of its name, such as Life Cycle Fund 2041. As that year gets closer, the fund must hold less equity and more debt. SEBI calls this timetable the glide path.
SEBI's other rules for the category:
- tenures from 5 to 30 years, in steps of 5 years
- at most six life cycle funds from one fund house open for new money at a time
- a fund with less than a year left may be merged into the fund house's next nearest one, but only if unitholders consent
- the benchmark follows SEBI's framework for multi asset allocation funds
2. The glide path
The circular fixes a range for each asset at each stage. The same bands apply to every tenure; a shorter fund starts further down the table.
| Years to maturity | Equity | Debt | Gold, silver, InvITs |
|---|---|---|---|
| 15 to 30 | 65% to 95% | 5% to 25% | up to 10% |
| 10 to 15 | 65% to 80% | 5% to 25% | up to 10% |
| 5 to 10 | 50% to 65% | 5% to 25% | up to 10% |
| 3 to 5 | 35% to 50% | 25% to 50% | up to 10% |
| 1 to 3 | 20% to 35% | 25% to 65% | up to 10% |
| Under 1 | 5% to 20% | 25% to 65% | up to 10% |
In the last three years, the debt must be rated AA or above and mature before the fund does.
With five years or less to go, a fund may add equity arbitrage of up to 50% on top of these ranges. Arbitrage buys a share and sells its future at the same time, so its return comes from the gap between the two prices. Total equity, arbitrage included, must then stay between 65% and 75%.
Illustration. Count back from 2056 for a 30-year fund. Equity can stay as high as 95% until about 2041. It is capped at 80% until about 2046 and at 65% until about 2051.
3. Seven schemes so far
AMFI's NAV file for 27 Oct 2026 lists seven life cycle schemes:
| Fund house | Schemes |
|---|---|
| ICICI Prudential | 2031, 2036, 2041 |
| Zerodha | 2031, 2036, 2041 |
| Mirae Asset | 2056 |
Mirae Asset's 2056 fund is the most recent. Its new fund offer ran on NSE's platform from 28 Sep to 12 Oct 2026, with units allotted on 19 Oct.
4. Exit loads for three years
SEBI fixed the exit loads for the whole category. An exit load is a charge taken from the amount you redeem.
- 3% on an exit within one year of investing
- 2% within two years
- 1% within three years
Illustration. Redeem ₹25 lakh 18 months after investing and the load is 2%, or ₹50,000. In the first year it would be ₹75,000.
5. Tax can change along the way
The Income-tax Act, 2025 sets a 65% test. A fund is an equity oriented fund only if at least 65% of its money is in listed shares of Indian companies. The share is worked out as an annual average of monthly figures, under section 198(8).
Equity oriented fund units are long-term after 12 months, under section 2(101). Long-term gains above ₹1.25 lakh a year are taxed at 12.5% (section 198). Short-term gains are taxed at 20% (section 196). Surcharge and cess come on top.
A fund below the 65% line loses those terms. Its units become long-term only after 24 months. Long-term gains are taxed at 12.5% with no ₹1.25 lakh exemption (section 197). Short-term gains are taxed at your income-tax slab rate.
Two points from the rules decide where a life cycle fund falls:
- In the 5 to 10 years band, SEBI's equity range is 50% to 65%, with no arbitrage allowance. A fund there can sit below the tax line.
- SEBI's circular says foreign securities are not a separate asset class, so foreign shares can count in a fund's equity. The tax test counts only listed shares of Indian companies.
The debt-fund rule in section 76, which taxes every gain at your slab rate, starts when debt is above 65%. SEBI's table caps a life cycle fund's debt at 65%.
What is still open
SEBI's rules for life cycle funds do not mention tax. How a sale is taxed in a year when the fund's average crosses 65% needs a CA's view.
The Income-tax Act sections above are quoted as enacted in August 2025. Check them against later Finance Act changes with your CA.
We post the charts behind these pieces on X (@revaprivate) and LinkedIn, and every new piece on our WhatsApp channel. Follow along to get them first.
Questions
- What happened to retirement funds and children's funds?
- SEBI discontinued the solution oriented category on 26 Feb 2026. Those schemes stopped all subscriptions at once and are to be merged into schemes with a similar asset mix, with SEBI's approval.
- What is a life cycle fund?
- An open-ended mutual fund with a maturity year in its name. It cuts equity and adds debt as that year approaches, within ranges SEBI set in its circular of 26 Feb 2026.
- What is the exit load on a life cycle fund?
- 3% on an exit within one year of investing, 2% within two years and 1% within three years, for every life cycle fund.
- How many life cycle funds can one fund house run?
- Up to six can be open for new money at any time, with tenures from 5 to 30 years in steps of 5.
- Is a life cycle fund taxed as an equity fund?
- Only while at least 65% of its money, on an annual average, is in listed shares of Indian companies, under section 198(8) of the Income-tax Act, 2025. In SEBI's 5 to 10 years band, equity can be as low as 50%.
Sources
- SEBI circular, Categorization and Rationalization of Mutual Fund Schemes, HO/24/13/15(2)2026-IMD-RAC4/I/5764/2026, clause 2.6.3.16, 2.6.3.17 and Annexure B (26 Feb 2026)
- SEBI circular, Revision of Monthly Cumulative Report format, listing the life cycle fund categories (19 May 2026)
- AMFI, NAV of all mutual fund schemes (27 Oct 2026)
- NSE circular NSE/NMFTM/76552, Launch of Mirae Asset Life Cycle Fund 2056 NFO on NSE MF Invest (25 Sep 2026)
- Income-tax Act, 2025 (No. 30 of 2025), sections 2(101), 76, 196, 197 and 198, Gazette of India CG-DL-E-22082025-265620 (21 Aug 2025)
Compound is analysis, not investment advice. Reva Money is not a SEBI-registered investment adviser.
