The Indian market regulator’s decision to discontinue solution-oriented schemes such as education and retirement funds offered by mutual fund houses has left ₹57,664 crore of investor money in limbo, with uncertainty over what will happen to the investments.
For Nandish Dholakia, a 28-year-old investor from Gujarat, the investment was never meant to be tactical—it had a destination. Almost a year ago, he started investing in an SBI Children’s Fund for his niece’s education, drawn by a structure that locked the money away from the temptations of market timing. That certainty has now evaporated following the Securities and Exchange Board of India's (Sebi's) decision.
“Sebi is arguing that AMCs (asset management companies) are giving emotional names and taking money, which is not good for investor protection, but all schemes have documents elaborating on all the information about a scheme,” Dholakia said.
Children’s funds, by design, prevent withdrawals until the passage of five years or until the child turns 18. That constraint, he said, helped investors stay committed to the financial goal. “Since the children's fund had a lock-in, I could not take out that money, no matter how the markets were performing. I was investing with a purpose in mind."
Sebi’s 26 February decision was part of a broader push to ensure that portfolios of schemes within a fund house are materially different from each other and provide value to investors.
"Solutions-oriented scheme category is being discontinued w.e.f the date of the circular. Existing schemes in this category shall stop all subscriptions with immediate effect. Such schemes shall be merged with any other scheme having similar asset allocation and risk profile with prior approval from Sebi," the regulator said.
The directive came after a consultation process that began in July 2025. However, the consultation paper did not mention the possibility of discontinuing such schemes.
An emailed query to Sebi did not elicit a response.
What happens next?
“Investors are more concerned about what happens to their money rather than the overall shutting of solution-oriented schemes,” said Vishal Bedse, investment advisor at ICICI Investment Management Company Ltd. “They have asked questions about what happens to their money if the lock-in is still in place and what would happen to their asset allocation if the scheme is merged.”
However, there is a push within the mutual fund sector to retain the existing category.
“The assets under management (AUM) of solution-oriented schemes may be small compared to the overall industry’s AUM but it is still over ₹50,000 crore. We have routed feedback to Sebi via the Association of Mutual Funds in India (Amfi) to retain solution-oriented schemes,” a mutual fund executive said on condition of anonymity.
Meanwhile, investors have been left in the lurch with the circular on the one hand and no official communication from AMCs on the other. They said money is still being debited from their accounts towards the scheme.
“The sentiment among investors is that of uncertainty,” said Ananya Roy, founder of Credibull Capital, an investment advisory firm. “They have their hard-earned money invested in these funds, and clearer regulatory direction along these lines would have helped.”
Solution-oriented schemes help investors invest their money with goals such as children’s education or retirement. Funds managed ₹57,664 crore of assets in this category in February, up 19% from a year earlier. Of this, 56% is held in retirement funds while the rest is in children’s funds, according to data from Amfi.
The schemes have a wide retail base. As of February, they accounted for about 6.28 million folios, up from 6.26 million in January. The average ticket size stood at ₹90,386 as of September 2025, according to Amfi. However, the schemes form a small portion of an industry with ₹82 trillion in AUM.
Enter: Life cycle funds
Sebi introduced a new fund category called life cycle funds, which are positioned as an alternative to solution-oriented schemes, offering investors another way to pursue long-term goals. These funds are open-ended with a target date maturity and follow a glide path across asset classes such as equity, debt, and infrastructure trusts.
As an investor nears retirement, the fund's asset allocation will automatically shift from equity-concentrated investments to more stable instruments such as debt.
Mutual funds can launch life cycle funds with tenures ranging from 5 to 30 years, in multiples of five years, with a maximum of six funds open for subscription at any given time. However, mutual funds are conflicted over whether this category will create material value for investors.
“We are not suggesting a life cycle fund. We never even recommended a solution-oriented scheme as it was a replication of open-ended schemes and offered little value. We may not recommend a life cycle fund for similar reasons and that better alternatives are present in the market,” Bedse said.
Funds with similar structures as life cycle funds exist in the US. This has created the expectation that it would garner attention from Indian investors too.
"We have gotten a lot of enquiries about life cycle funds as the segment has helped investors in developed economies in planning their retirement and other lifecycle events,” said Abhishek Kumar, founder and chief investment advisor at Sahaj Money, an advisory firm.
Kumar added that a life cycle fund offers investors additional flexibility to move their money whenever needed. This opens a door previously shut with solution-oriented schemes due to their mandatory lock-ins.
On the other hand, the mutual fund executive cited earlier said the industry would want Sebi to retain both solutions-oriented and life cycle funds as this would improve investor flexibility. Such a framework would ensure that mutual funds do not lose existing customers or their AUM during the transition.
“We have not written to investors as the scheme has not been shut yet,” the executive added.