Life cycle funds: A simple guide to SEBI's new fund category

Summary: SEBI has created a brand-new mutual fund category replacing the old retirement/children’s funds bucket. There are many things that make them different. They come with a maturity year, a glide path and exit-load rules. Find all the details below.  Market regulator SEBI has introduced a new mutual fund category called life cycle funds. These funds are meant to replace the earlier solution-oriented bucket (retirement and children’s funds), which SEBI has now discontinued. The key difference between them is structure. Life cycle funds are built with a stated maturity year and will follow a defined glide path under which the equity-debt mix will change automatically as the maturity year gets closer. Solution-oriented funds in contrast were goal-labelled schemes but did not follow a maturity-linked allocation path. The core idea: a glide path tied to the target year Life cycle funds will have a fixed maturity, and the maturity year has to form part of the scheme’s name, meant to make the intended time horizon easy to identify. Schemes can be in tenures of five to 30 years, in multiples of five years. The asset allocation will shift based on the number of years left to maturity. When maturity is far away, the scheme can hold more equity. As maturity nears, the permitted equity allocation will reduce and the allocation to debt will increase. These allocation limits are prescribed