Summary of this article
Sebi replaces solution-oriented schemes with goal-based life cycle funds
Life cycle funds shift from equity to debt as target year nears
Sector funds capped at 50 per cent overlap; three-year transition allowed
Clearer debt duration norms and monthly portfolio overlap disclosures
The Securities and Exchange Board of India (Sebi) has discontinued solution-oriented mutual fund schemes and introduced life cycle funds, aiming to simplify investing and improve long-term financial planning for retail investors, according to its latest circular.
The new rules will make it easier for retail investors to understand what they are buying. The old classification from 2017 has now changed.
The main groups of funds stay the same—equity, debt, and hybrid. But Sebi has added a new group called Life Cycle Funds. They also cleaned up rules for index funds, exchange-traded funds (ETFs), and fund-of-funds.
5 February 2026
Get the latest issue of Outlook Money
In equity funds, the basic rules for large-cap, mid-cap, and small-cap stocks stay the same. The big change is for sector and theme funds. Now these funds cannot be too similar to other equity funds. They can overlap only up to 50 per cent. Old funds get three years to fix this step by step.
Debt Funds
For debt funds, the rules about how long the money is invested (called duration) are now clearer. Every paper must explain this in simple words. If interest rates may go up or down, the manager can change the time period a little, but he must write the reason and show it to the trustees.
Life Cycle Funds Replace Solution-Oriented Schemes
The new life cycle funds are special. They are for long-term goals like buying a house or retirement. The fund slowly changes from more stocks in the early years to safer bonds near the end. The name will show the year, like “Life Cycle Fund 2045." You can start with five years or up to 30 years. Each company can run only six such funds at a time. If you take money out early, you pay a small charge, up to three per cent in the first year. This helps people stay invested for the full time.
Old “solution” funds (like children’s funds or retirement funds) will stop taking new money right away. They will join other similar funds.
All old funds must change their names, goals, and mix of investments in the next six months. Sebi says these changes are not big, so it is easy for companies to do. Companies must also show every month how much their funds overlap, so people can see the real difference.
