On 26 February 2026, the Securities and Exchange Board of India (SEBI) introduced major changes in the way mutual funds are classified and managed. The goal is to make schemes clearer, reduce confusion, and ensure that products match what they promise.
India’s mutual fund industry is now close to 900 billion US dollars in assets under management. With such large savings at stake, the regulator wants stronger rules to protect investors and make products easier to understand.
The new framework brings fresh guidelines on product categories, removes some older types of schemes, and introduces a new structure called life-cycle funds.
Life-cycle funds are open-ended schemes linked to a target year. They are designed for long-term goals such as retirement or a child’s education. Each fund comes with a built-in plan that changes the mix of investments over time.
In the early years, when the target date is far away, the fund keeps a higher portion in equity. Equity carries more risk but also offers higher growth potential. As the target year gets closer, the scheme slowly shifts money into safer assets such as debt instruments and gold or silver exchange-traded funds.
The regulator has defined target maturity buckets such as 30, 25, 20, 15, 10 and 5 years. This helps savers choose a plan that matches their time horizon.
Earlier, many goal-based or solution-oriented schemes existed, but their structure was not always clear. Some funds with similar names followed different investment patterns. This made comparison difficult.
The new rules standardise how life-cycle schemes must operate. Every such fund must clearly disclose how the allocation will change over time. This glide path cannot be random. It must follow a defined pattern.
By doing this, the regulator aims to ensure that schemes stay true to their label. The changes also remove the old “solution-oriented” category. Existing funds under that segment must either merge or align with the new structure.
Another important change is the limit on portfolio overlap. In some similar equity categories, such as value and contra strategies, portfolio similarity has been capped at 50 percent.
Mutual funds must now report category-wise overlap every month. This step is meant to reduce duplication. When too many funds hold the same stocks, investors do not get real diversification. The new rule pushes asset managers to differentiate their strategies.
This overhaul affects nearly 40 mutual fund categories described under the updated framework.
Life-cycle and certain hybrid funds can now invest up to 10 percent of their assets in gold and silver exchange-traded funds, exchange-traded commodity derivatives, or related instruments. This formalises exposure to precious metals as a diversification tool within regulated limits.
There is also a change in how gold and silver are valued. From 1 April 2026, physical gold and silver held by mutual funds will be valued based on domestic spot prices collected from recognised Indian exchanges. This replaces earlier methods and aims to better reflect local market conditions.
Life-cycle schemes are designed to reduce the need for frequent monitoring. The automatic shift from equity to safer assets helps manage risk as the goal approaches. This can be helpful for retirement planning, where discipline over decades is important.
However, returns will depend on how each fund designs its glide path, the quality of debt investments, and overall cost structure. Even small differences in allocation over long periods can impact final outcomes.
Some experienced investors may still prefer building a customised portfolio instead of choosing a single target-date product. But for many households, the new structure offers simplicity and clarity.
The circular issued on 26 February 2026 marks one of the most significant changes in India’s mutual fund landscape in recent years. With the industry nearing 900 billion dollars in size, tighter supervision and clearer product definitions were expected.
By introducing life-cycle funds, limiting portfolio overlap, allowing controlled gold exposure, and updating valuation norms, the regulator has attempted to balance growth with protection.
The coming months will show how asset management companies redesign their offerings under these norms. For investors, the message is simple: products are becoming more structured, more transparent, and more aligned with long-term financial goals.