Built for a date, not a lifetime

Summary: Lifecycle funds automate the shift from equity to debt as a goal date nears. Testing three savers over 24 years of data, we explain whether lifecycle funds are a suitable option for your goals or not.

Summary: Lifecycle funds automate the shift from equity to debt as a goal date nears. Testing three savers over 24 years of data, we explain whether lifecycle funds are a suitable option for your goals or not. “If you wait for the robins, spring will be over” – Warren Buffett We’ve told our readers for years that as a goal approaches, move your money from equity to safer assets. Do this on a schedule you set beforehand, not on a feeling or a guess. This is asset allocation and asset rebalancing. The idea is obvious, but many investors ignore it, as they ignore many other obvious investing ideas. Most savers know what to do, but they don’t do it because selling a good investment is hard. SEBI introduced a new category called ‘lifecycle funds’ this year, and these funds make the task easier. Every fund comes with a maturity year. The fund then shifts from equity to debt automatically as the goal date approaches. This is good news, and it is true. But an automatic fund can still be the wrong fund for your goal. We tested the idea with 24 years of market data and the goals of three real savers. And here is what we found. Suresh Malhotra shows what can go wrong. In 2008, he had 14 months before his daughter’s college fees were due. He had about Rs 9 lakh in three diversified equity funds. He kept them in equity as it had given him good returns for 10 years. Suresh knew he had to move some money to a fixed deposit. He planned to do this after the next good month. Alas, the next good month never came. By March 9, 2009, his Rs 9 lakh fell to just Rs 3.4 lakh. Did Suresh make a mistake? No. His savings were regular, and his funds were good. Could Suresh have used a different mutual fund category? Well, he did not have many options. Solution-oriented funds would not have done this task. India now has 24 retirement and children’s funds, with a collective asset base of Rs 52,400 crore. They have a lock-in, but keep the same mix for all ages, whether you are 30 or 60. In August, HDFC’s retirement equity plan held 94 per cent in equity. It held this for a 25-year saver and a 59-year saver, with no difference. In the 24 funds, 89 per cent of the money is in plans that hold 70 per cent or more in equity. In bad market periods, the money in these funds falls sharply. Consider Rs 1 crore in a fund with 95 per cent equity on the last day of 2007. Fifteen months later, it tumbled to Rs 47 lakh, less than half of its value. At 12.5 per cent equity, the same was worth Rs 1.04 crore. And this is where lifecycle funds can come in handy. What are lifecycle funds? Lifecycle funds are open-ended mutual funds. SEBI introduced them this year to replace solution-oriented funds. Each lifecycle fund has a stated maturity year and follows a defined glide path. On this path, the equity-debt mix changes automatically as the maturity year approaches. Currently, six lifecycle funds are open, with eight more on the way. Zerodha and ICICI Prudential started first. SEBI lets the old goal funds continue, but it puts limits on them. A fund house that keeps a retirement fund cannot start a 30-year lifecycle fund. Is your goal a date or a period? Think about the goal that you save the most for, and the year when you will need the money. Will you spend all of it in the same year? Or will you draw from it over the years? If you will spend all the money that year, your goal is a date. A college fee, a wedding payment or a down payment all come due on a single day. So yo

This article was originally published on October 23, 2026.