A Life Cycle Fund is a mutual fund with a target year in its name (say, Life Cycle Fund 2041) that starts with mostly equity and moves steadily into debt as that year approaches, then pays you out at maturity. SEBI created the category on 26 February 2026, the funds come in 5- to 30-year tenures, and an exit load of 3%, 2% or 1% applies if you leave in the first three years.
As of 1 October 2026 six schemes are live, from two fund houses. This guide covers the SEBI rules, what the funds cost, how they are taxed, who they suit, and how they compare with the NPS "Life Cycle" options that share the name. It explains the product; it doesn't recommend any scheme.
What SEBI's rules actually say
The category was introduced in SEBI's circular on categorisation and rationalisation of mutual fund schemes (26 February 2026, Annexure B) and carried into the Master Circular for Mutual Funds dated 20 March 2026 (para 3.8.4 and Annexure 1B). The master circular is now the rulebook. The main points:
- Tenure: 5 to 30 years, in multiples of five. So the only options are 5, 10, 15, 20, 25 and 30 years.
- Maturity year in the name: for example "Life Cycle Fund 2045". You pick the fund whose year matches your goal.
- Six at a time: a fund house can have at most six Life Cycle Funds open for subscription at any point.
- What they can hold: equity, debt, InvITs, and gold or silver (through ETFs or exchange-traded commodity derivatives).
- Near maturity: once a fund has less than a year left, it may be merged into the nearest-maturity Life Cycle Fund, but only with unitholders' positive consent.
- Benchmark: the same framework as multi-asset allocation funds.
- Exit load: 3% if you redeem within one year, 2% within two years, 1% within three years, nil after that. SEBI says this is to "inculcate financial discipline".
The glide path: how much equity at each stage
The glide path is the schedule that moves money from equity to debt. SEBI fixes a range for each stage, based on years left to maturity, and every tenure follows the same table from the point where it starts. A 30-year fund begins in the top row; a 10-year fund begins at "5–10 years"; a 5-year fund begins at "3–5 years".
| Years to maturity | Equity | Debt | Gold/silver/InvITs |
|---|---|---|---|
| 15–30 years | 65–95% | 5–25% | 0–10% |
| 10–15 years | 65–80% | 5–25% | 0–10% |
| 5–10 years | 50–65% | 5–25% | 0–10% |
| 3–5 years | 35–50% | 25–50% | 0–10% |
| 1–3 years | 20–35% | 25–65% | 0–10% |
| Under 1 year | 5–20% | 25–65% | 0–10% |
Source: SEBI Master Circular for Mutual Funds, 20 March 2026, Annexure 1B.
Two extra rules sit under the table. In the last three years, the debt must be rated AA or above, with residual maturity shorter than the fund's own maturity. And once a fund is under 10 years from maturity, it may add equity arbitrage of up to 50% on top of its equity band, as long as total equity and equity-related holdings stay within 65–75%. The February circular allowed this only under five years; the March master circular widened it to ten. Several articles, including older versions of this one, still quote the five-year rule.
Arbitrage means buying a share and selling its future at the same time. It earns a small, debt-like return with almost no market risk, but it counts as equity holdings. That detail matters for tax, as the next sections show.
Illustrative: ₹10 lakh in a 15-year fund
Say you put ₹10 lakh into a 15-year Life Cycle Fund and the fund manager sits at the middle of each band. The unhedged equity in your holding would move roughly like this (ignoring market moves, so this shows the mix, not returns):
| Years left | Equity at band midpoint | Equity on ₹10 lakh |
|---|---|---|
| 10–15 | 72.5% | ₹7.25 lakh |
| 5–10 | 57.5% | ₹5.75 lakh |
| 3–5 | 42.5% | ₹4.25 lakh |
| 1–3 | 27.5% | ₹2.75 lakh |
| Under 1 | 12.5% | ₹1.25 lakh |
Real funds won't sit at the midpoint. SEBI's bands are wide (65–95% is a big range), so two "2041" funds from different AMCs can carry quite different risk in the same year. Read each scheme's information document (SID) for the fund house's own path.
The six Life Cycle Funds live today
AMFI's NAV file for 1 October 2026 lists three sub-categories (5, 10 and 15 years to maturity) and six schemes:
| Target year | Tenure | Schemes |
|---|---|---|
| 2031 | 5 years | ICICI Prudential Life Cycle Fund 2031; Zerodha Life Cycle Fund 2031 |
| 2036 | 10 years | ICICI Prudential Life Cycle Fund 2036; Zerodha Life Cycle Fund 2036 |
| 2041 | 15 years | ICICI Prudential Life Cycle Fund 2041; Zerodha Life Cycle Fund 2041 |
Zerodha's 2036 and 2041 funds have NAVs from July 2026; ICICI Prudential's three were allotted in mid-September 2026. Nobody has launched a 20-, 25- or 30-year fund yet, so there is no product for someone retiring in the 2050s, and no scheme has a track record worth judging.
Costs differ a lot. Zerodha states a base expense ratio of 0.42% for its funds. ICICI Prudential's direct plans showed a total expense ratio of 0.98–1.09% in late September 2026 (Groww data). Compare total expense ratios on the AMC's site before investing, since they change.
How Life Cycle Funds relate to children's and retirement funds
The same February circular discontinued the old "solution-oriented" category, which held children's funds and retirement funds. Those schemes had a lock-in but no required glide path. The March master circular then softened the change and gave each fund house four choices:
- keep its children's fund, and give up the 20-year Life Cycle Fund;
- keep its retirement fund, and give up the 30-year Life Cycle Fund;
- keep both, and offer only the 5-, 10-, 15- and 25-year Life Cycle Funds;
- discontinue both (stop subscriptions and merge them, with SEBI approval) and offer all six.
So if you hold a children's or retirement fund, your scheme may continue. What happens depends on your AMC's choice, and our guide to the children's and retirement fund changes explains how to check and how mergers are taxed. For the rest of the February overhaul (the 80% equity floor for value and contra funds, overlap limits and so on), see SEBI's new mutual fund rules for 2026.
How Life Cycle Funds are taxed
A Life Cycle Fund is taxed like any other mutual fund: by what it holds, and only when you redeem. The fund moving from equity to debt inside the scheme isn't a sale, so it doesn't trigger tax for you. What matters is whether the scheme qualifies as equity-oriented (at least 65% in listed Indian equity), and that is where the arbitrage rule comes in.
| Scheme type | Short-term | Long-term |
|---|---|---|
| Equity-oriented (65% or more in Indian equity) | 20% if held 12 months or less | 12.5% on gains above ₹1.25 lakh a year |
| Not equity-oriented, debt 65% or less | Slab rate if held 24 months or less | 12.5% after 24 months, no ₹1.25 lakh exemption |
| More than 65% in debt and money market | Slab rate | Slab rate |
Rates apply to sales from 1 April 2025; 4% cess is added. They carry over into the Income-tax Act, 2025 from tax year 2026-27.
Look at the glide path again. Above 10 years to maturity, the equity floor is 65%, so the fund is equity-oriented by design. Under 10 years the directional equity falls below 65%, but arbitrage can make up the gap: SEBI caps total equity holdings at 65–75% in that phase, and arbitrage positions count. Zerodha states its funds are "treated as equity for taxation purposes" throughout their life. One thing to watch: in the final year, a fund at the 5% equity floor can't reach 65% with the 50% arbitrage cap, so it needs at least 15% unhedged equity. Check the scheme's SID rather than assuming.
Here's why the label matters, on an illustrative ₹5 lakh long-term gain:
| Treatment | Tax on ₹5 lakh gain (incl. cess) |
|---|---|
| Equity-oriented, held over 12 months | ₹48,750 |
| Not equity-oriented, debt 65% or less, held over 24 months | ₹65,000 |
| More than 65% debt, 30% slab | ₹1,56,000 |
Illustrative: equity row is (₹5,00,000 − ₹1,25,000) × 12.5% × 1.04; the 30% slab row ignores surcharge.
Life Cycle Funds do not qualify for the section 123 deduction (old section 80C). Among mutual funds, only ELSS does, and only in the old tax regime.
The exit load in rupees
On a ₹5 lakh redemption, the exit load would be ₹15,000 in the first year, ₹10,000 in the second, ₹5,000 in the third and nothing after that. It's only a problem if there's a real chance you'll need the money in the first three years. If so, a Life Cycle Fund is the wrong home for it.
Who Life Cycle Funds suit, and who should skip them
My general view: they make the most sense for one goal with one date, held by someone who knows they won't rebalance on their own. A 2041 fund for a child's college fees is the cleanest case. The fund does the de-risking that most people intend to do and then forget.
They suit:
- a single dated goal (education, a house deposit, a retirement year) that matches an available tenure;
- investors who find picking and rebalancing three or four funds too much effort;
- NRIs and others who can't watch their portfolio closely. NRIs should check their country's tax rules first; US persons in particular face PFIC rules on Indian mutual funds.
Think twice if:
- your goal is more than 15 years away, since no 20-, 25- or 30-year fund exists yet;
- you already rebalance a simple portfolio of index funds and a debt fund, which can be cheaper and more flexible;
- your goal date is uncertain. The fund matures on its date whether or not you need the money then, and the proceeds go to your bank account, which may leave a large sum to reinvest;
- you have several goals, which means several Life Cycle Funds to track.
Before choosing, run the goal itself through the retirement corpus calculator or a SIP calculator. The fund only manages the mix; how much you invest still decides whether you get there.
NPS life cycle funds are a different product
NPS has its own "Life Cycle" options under Auto Choice, and the names cause confusion. They are not mutual funds and are regulated by PFRDA, not SEBI. Their glide path is set by your age, not a target year. PFRDA renamed them on 17 October 2025:
| NPS option (new name) | Equity cap | Equity at 55 |
|---|---|---|
| Life Cycle 75 – High (15E/55Y) | 75% up to age 35 | 15% |
| Life Cycle 50 – Moderate (10E/55Y) | 50% up to age 35 | 10% |
| Life Cycle 25 – Low (5E/55Y) | 25% up to age 35 | 5% |
| Life Cycle – Aggressive (35E/55Y), formerly Balanced Life Cycle | 50% up to age 45 | 35% |
The bigger differences are access and tax. NPS money is locked until 60 with limited withdrawals, and at exit only 60% of the corpus is tax-free while annuity income is taxed at your slab. In the old regime you can deduct up to ₹50,000 a year under section 124(3) (old 80CCD(1B)). A mutual-fund Life Cycle Fund has no lock-in after the exit-load period and no deduction. To size an NPS corpus, try the NPS calculator; for a side-by-side of the retirement options, see retirement mutual funds vs NPS vs PPF.
Neither replaces EPF if you have it. EPF pays an annually declared rate (8.25% for FY 2025-26), largely tax-free, with an employer contribution on top.
What to check before you invest
- The target year. Pick the fund that matures at or just before you need the money.
- The AMC's glide path within SEBI's bands. The SID shows where the fund intends to sit in each range.
- Total expense ratio of the direct plan, compared with a do-it-yourself mix.
- Tax status. Confirm the SID says the scheme intends to stay equity-oriented through to maturity.
- What happens at maturity. Payout to your bank, or a merger offer in the final year, which needs your consent.
