SEBI Overhauls Mutual Funds with Life Cycle Funds and Contra Rules
SEBI Overhauls Mutual Funds with Life Cycle Funds and Contra Rules
SEBI overhauls mutual funds with Life Cycle glide-path funds, introduces Contra and Value funds with overlap caps, and enforces 'true to label' naming for investor clarity.
In a bid to simplify and sharpen investor clarity, SEBI issued a fresh circular on February 26, 2026, overhauling mutual fund scheme categorisation and structure. The centerpiece is Life Cycle Funds, open-ended target-date schemes with maturities of five to 30 years, launched in five-year buckets such as Life Cycle Fund 2045 or Life Cycle Fund 2050. These funds use a glide-path asset allocation, automatically shifting the equity and debt mix as the target date approaches to align risk with the investor horizon.
On the rules for fund types, SEBI allows both Value and Contra funds, but imposes a hard cap: portfolio overlap between the two must not exceed 50%. For sectoral and thematic equity schemes, overlap with other schemes in the same category and with other equity categories (excluding large-cap) cannot exceed 50% either. To ensure compliance, firms must realign 35% of any excess overlap in the first year, another 35% in the second year, and the remaining 30% in the third year. Schemes that fail to meet the criteria after three years may be mandatorily merged with others.
Naming norms are also tightened. A scheme's name must be identical to its category, and words that over-emphasise returns should not appear. Asset managers have six months to implement these changes across all existing schemes. Finally, Life Cycle Funds will be marketed with clear horizon labels (for example, Life Cycle Fund 2045 or 2050), making the investment timeline immediately visible to investors. Industry observers say the move could improve clarity and prevent product duplication, even as managers work to adapt product grids and communications.
