SEBI Discontinues Solution-Oriented Mutual Fund Category, Introduces New Rules

Major Changes in Mutual Fund Categorization by SEBI

Mumbai, Feb 26: The Securities and Exchange Board of India (SEBI) has officially ended the solution-oriented mutual fund category, which encompasses children's and retirement funds. This decision is part of a significant reform aimed at enhancing clarity and transparency for investors in the mutual fund landscape.

According to the markets regulator, the solution-oriented category is no longer in effect as of the date of the announcement.

All existing schemes within this category will cease to accept new subscriptions immediately.

These funds will be integrated with other schemes that share similar asset allocations and risk profiles, pending SEBI's approval.

As of January 31, 2026, there were 15 schemes classified under children's funds and 29 under retirement funds.

SEBI initially suggested these changes in July 2025 as part of a comprehensive review of mutual fund categorization.

The objective was to enhance clarity, introduce new schemes, and tackle the issue of overlapping portfolios among various schemes.

During that proposal, the regulator indicated that mutual funds should be permitted to offer diverse schemes within the solution-oriented category, featuring different equity and debt mixes, as long as the asset allocation aligns with the scheme's stated goals.

Additionally, SEBI proposed allowing mutual funds to invest a portion of their solution-oriented schemes in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), with certain exceptions for Retirement Fund - Hybrid and Children's Fund - Hybrid schemes, adhering to regulatory limits.

In the latest circular released on February 26, SEBI has introduced new categories, including contra funds and sectoral debt funds.

It has also launched goal-based life cycle funds and instructed asset management companies (AMCs) to adjust their existing schemes to fit the new framework within a six-month timeframe.

Furthermore, the regulator has set specific limits for the introduction of Fund of Funds (FoFs) to promote better discipline in product offerings.

Nikunj Saraf, CEO of Choice Wealth, remarked that SEBI's new mutual fund classification rules represent a significant move towards simplifying an increasingly complex industry for retail investors.