SEBI overhauls MF rulebook, introduces life cycle funds

New Delhi/Mumbai: Markets regulator Securities and Exchange Board of India (SEBI) on Thursday unveiled a revamped framework for mutual fund (MF) classification, introducing Life Cycle Funds, discontinuing the Solution-Oriented Schemes category, including children’s and retirement funds, and tightening disclosure, naming and portfolio overlap norms to ensure “true-to-label” positioning.

The overhaul aims to simplify product offerings, curb exaggerated return claims in scheme names and align regulations with the evolving mutual fund landscape and emerging asset classes.

Under the revised framework, mutual fund schemes will be broadly classified into five categories—Equity, Debt, Hybrid, Life Cycle, and Other Schemes, which include Fund of Funds (FoFs) and Passive Schemes such as index funds and ETFs.

To ensure uniformity and easy identification, SEBI has mandated that scheme names must mirror their category, disallowing words or phrases that highlight only return potential. The “type of scheme” description in offer documents and advertisements must strictly follow SEBI’s prescribed format.

The Solution-Oriented Schemes category has been discontinued with immediate effect. Existing children’s and retirement funds will stop accepting fresh subscriptions and will be merged with schemes having similar asset allocation and risk profiles, subject to SEBI approval. As of January 31, 2026, there were 15 children’s fund schemes and 29 retirement fund schemes.

SEBI has also introduced Life Cycle Funds as open-ended, goal-based schemes with pre-determined maturities ranging from 5 to 30 years, featuring a glide-path strategy where equity exposure reduces and debt allocation increases as maturity approaches. These funds may invest across equity, debt, InvITs, ETCDs and Gold/Silver ETFs.

Foreign securities will no longer be treated as a separate asset class. For index funds and ETFs, at least 95% of assets must track the underlying index.