If you hold a children's fund or a retirement fund, you may have read in early 2026 that the category was being "scrapped" and every scheme would be merged. That was the position for a few weeks. It is not the position now. This guide explains the two SEBI circulars, what has actually happened to these schemes since, and what you should check for your own investment.
What SEBI Decided, in Two Steps
26 February 2026: the category is discontinued
SEBI's circular on the categorisation and rationalisation of mutual fund schemes (HO/24/13/15(2)2026-IMD-RAC4/I/5764/2026) discontinued the "solution-oriented" category, which held children's funds and retirement funds. In its place it introduced a new category, Life Cycle Funds: target-date funds that shift from equity to debt as a fixed maturity year approaches. Fund houses were given six months to make the scheme changes the circular required.
20 March 2026: fund houses get a choice
Less than a month later, SEBI's Master Circular for Mutual Funds (HO/24/13/11(1)2026-IMD-POD-1/I/7602/2026) softened this. Each fund house (AMC) can now choose one of four routes:
| AMC's choice | What it can offer |
|---|---|
| Keep its children's fund | No 20-year Life Cycle Fund |
| Keep its retirement fund | No 30-year Life Cycle Fund |
| Keep both | Only 5-, 10-, 15- and 25-year Life Cycle Funds |
| Discontinue both | Must stop fresh subscriptions and merge the schemes (with SEBI approval); can launch all six Life Cycle Funds |
So the category is not simply "gone". Whether your scheme continues depends on what your fund house decided.
How Big Is This Category, and What Has Happened Since?
AMFI's monthly data shows the schemes are still running:
| Month | Children's funds | Retirement funds | Total |
|---|---|---|---|
| January 2026 | 12 schemes, 32.1 lakh folios, ₹25,230 crore | 29 schemes, 30.5 lakh folios, ₹32,044 crore | ₹57,274 crore, 62.6 lakh folios |
| August 2026 | 12 schemes, 33.2 lakh folios, ₹28,229 crore | 29 schemes, 30.7 lakh folios, ₹33,194 crore | ₹61,423 crore, 63.9 lakh folios |
The number of schemes was the same in August 2026 as in January, and both groups were still taking in money: children's funds mobilised ₹389 crore and retirement funds ₹247 crore (gross) in August 2026. In other words, there had been no large-scale wave of mergers by the end of August 2026.
Life Cycle Funds: The New Category
Life Cycle Funds are the replacement SEBI has in mind for goal-based investing. The main rules from the February 2026 circular and the March 2026 master circular:
- Target date: each fund has a maturity of 5 to 30 years, in multiples of five, with the maturity year in its name (for example, "Life Cycle Fund 2045"). An AMC can have at most six open at a time.
- Glide path: equity of 65–95% when the fund is 15 or more years from maturity, falling step by step to 5–20% in the final year. Debt holdings are limited to papers rated AA and above. Gold, silver and InvITs can make up 0–10%.
- Arbitrage near maturity: the March master circular allows equity arbitrage positions once the fund is less than 10 years from maturity.
- Exit load: 3% if you exit in year 1, 2% in year 2 and 1% in year 3.
As of August 2026, AMFI data showed two Life Cycle Funds live: one with a 10-year target (₹19.76 crore) and one with a 15-year target (₹18.31 crore). Our explainer on Life Cycle Funds covers how the glide path works, and SEBI's new mutual fund rules for 2026 puts this change in context with the rest of the recategorisation.
What You Should Do Now
1. Find out whether your scheme is continuing
Check your fund house's website, its notices to investors and any email or letter it has sent you. Under the March 2026 framework, the AMC either keeps the scheme (giving up a Life Cycle Fund) or discontinues it and merges it. If you have heard nothing and the scheme is still accepting SIPs, it is most likely continuing, but confirm with the AMC.
2. If it is continuing
Nothing changes for you because of these circulars. Your units, SIPs and any lock-in continue as before. Review the fund as you would any other: does its asset mix still suit your goal and timeline? Our comparison of a children's fund vs a separate SIP covers that decision.
3. If it is being merged
The merger notice is the document that matters. Read it for:
- the target scheme your units will move to, and its category and asset mix;
- its expense ratio compared with your current scheme;
- the effective date and the swap ratio (units are moved across at the NAVs on that date);
- any exit window offered before the merger, and whether exit load or lock-in applies if you leave during it.
Children's and retirement funds were originally required (by SEBI's 2017 categorisation rules) to have a lock-in of at least five years or until the child came of age or retirement, whichever was earlier. How any remaining lock-in is handled in a merger is something to confirm in your scheme's notice; do not assume it is waived.
4. Do not act in a hurry
Selling a fund to "get ahead" of a merger can create a tax bill that the merger itself would not. The next section explains why.
Tax: Is a Scheme Merger a Sale?
Under the Income-tax Act, 2025 (from tax year 2026-27), section 70(1)(zj) says that exchanging units of a consolidating mutual fund scheme for units of the consolidated scheme is not a transfer, as long as the consolidation is of two or more schemes that are all equity-oriented, or all not equity-oriented. Your original purchase cost and holding period carry over to the new units (section 73 and the holding-period rules in section 2). The 1961 Act had the same rule in section 47(xviii).
Two points follow:
- If an equity-oriented children's fund merges into another equity-oriented fund, there is no tax at the time of the merger.
- If a scheme merges across that line (for example, a debt-heavy retirement fund into an equity-oriented fund), the exemption's wording does not obviously cover it. Check the AMC's notice and, for a large holding, a tax adviser.
If you redeem instead, normal rules apply to sales from 1 April 2025 onwards:
| Fund type | Short-term | Long-term |
|---|---|---|
| Equity-oriented (65% or more in Indian equity, including aggressive hybrid children's funds) | 20% if held 12 months or less | 12.5% on gains above ₹1.25 lakh a year, after 12 months |
| Hybrid with 35–65% equity | Slab rate if held 24 months or less | 12.5% after 24 months |
| More than 65% debt, bought on or after 1 April 2023 | Slab rate | Slab rate (no long-term category) |
Cess of 4% applies on top. If you are going to redeem a large holding, spreading it across two tax years lets you use the ₹1.25 lakh equity exemption twice. For more, see our guide to mutual fund tax in 2026.
Why SEBI Made the Change
SEBI's circulars do not give a long rationale, so be wary of articles that claim to know its motives in detail. What is clear from the documents is the direction: SEBI wants goal-based funds to have a defined, rule-based path from equity to debt as the goal approaches, which is what Life Cycle Funds do. Children's and retirement funds, by contrast, had no required glide path; many held a fixed asset mix similar to an ordinary hybrid or equity fund. The March master circular lets AMCs keep an existing scheme in exchange for not offering the overlapping Life Cycle Fund, so investors are not forced out of products that are working for them.
This article explains regulatory changes. It is not advice to buy, hold or sell any scheme. Check your AMC's notices for decisions about your specific scheme.
Run your numbers: size a child's education goal with the child education cost calculator, and check whether your retirement savings are on track with the retirement calculator.
