The category currently manages over ₹57,000 crore across 41 schemes and 6.2 million folios.
In January, investors had put in a gross amount of ₹277 crore into these schemes through SIPs. Net inflows, including one-time investments, stood at ₹342 crore.
The decision to discontinue the category — part of the sweeping changes in mutual fund (MF) classifications announced on Thursday — also came as a surprise to many in the MF industry.
This is because it was the only major announcement that was not part of the July 2025 consultation paper.
Most large fund houses — HDFC, UTI, SBI, Tata, ICICI Prudential and Nippon India — have sizeable assets under management (AUM) in these categories.
MF executives said that although the category is small relative to the industry’s overall assets, it has one of the stickiest investor bases. There is a meaningful portion of folios and SIPs running for over a decade.
“Clearly, investors in children’s and retirement funds tend to be long-term participants. The lock-in feature and the goal-oriented positioning of these schemes helped instil discipline. Suddenly, closing such funds overnight could impact investor confidence,” said a senior industry executive.
According to the circular, these schemes will have to be merged with other schemes having a similar asset allocation and risk profile, subject to regulatory approval.
The closure of the schemes and their merger, according to another senior MF executive, may not sit well with all existing investors.
“Distributors sold these as dedicated retirement and children’s solutions. If a retirement fund is now merged into a largecap, flexicap or hybrid scheme, the original mandate changes.
Investors will naturally ask what happened to the ‘solution’ they had signed up for,” he said.
The regulator has introduced a new category in place of the solution-oriented funds. Life Cycle Funds, while structurally different, can address similar use-cases, experts said.
These schemes will be open-ended and follow a pre-defined asset allocation glide path, automatically reducing equity exposure and increasing debt allocation as investors age.
According to some in the industry, the product had long been a demand of fund houses, as it provides a more robust framework for goal-based investing.
“Life cycle funds were always an industry demand. They are more appropriate because asset allocation happens at the fund level based on the investor’s remaining time horizon. This is tax-efficient and reduces the risk of misselling,” said a senior industry executive.
 "Securities and Exchange Board of India, Sebi")
