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INTRODUCTION
Explore the simplicity of investing with Index Funds, which mirrors market indices like Sensex and Nifty50. 'Index Funds Simple Hai' reflects a straightforward approach to participate in the markets, offering an accessible and beneficial investment option for every investor, whether experienced or beginner.
BENEFITS OF INDEX FUNDS
Index funds offer various benefits, making them a popular choice among investors
Ease and Accessibility
Index Funds are accessible to investors of all levels, requiring minimal expertise to get started. Simplify your investment journey with index funds
Cost-Efficiency
With generally lower expense ratios, Index Funds offer a cost-effective way to potentially grow your wealth over time
Diversification
By investing across various sectors or market caps, Index Funds aim to provide diversification that may enhance portfolio stability and reduce risk
Good for the Long Term
With their passive management approach and focus on long-term growth, Index Funds are well-suited for investors with a horizon spanning multiple years
DIFFERENT TYPES OF INDEX FUNDS
Sector-Based Index Funds
Build your portfolio with sector-based Index Funds, focusing on specific industries for targeted exposure and potential growth
Broad Market Index Funds
Gain comprehensive market representation with broad market Index Funds, spanning multiple sectors and market caps for diversified growth
Market Capitalization Index Funds
Invest based on company size with market capitalization Index Funds, offering exposure to large-cap, mid-cap and small-cap stocks
Equal Weight Index Funds
Provides fair allocation across all stocks in the index with equal weight Index Funds, providing balanced investment opportunities
Factor-Based or Smart Beta Index Funds
Utilize factors like price-to-earnings ratio, dividend yield, or volatility to construct portfolios with factor-based or smart beta index funds, potentially enhancing risk-adjusted returns
Strategy Index Fund
Opt for strategy Index Funds that aim to replicate indices constructed with quantitative models and investment strategies, offering dynamic asset allocation for potential risk management and returns optimization
International Index Funds
Diversify globally with international Index Funds, tracking indices like the S&P 500, NASDAQ, or Hang Seng for exposure to foreign markets and potential returns
Debt Index Funds
Hedge against market volatility with debt Index Funds, offering exposure to fixed-income instruments like bonds and treasuries for potential income and risk management
PROS AND CONS OF INDEX FUNDS
- -Wide range of options catering to different investment preferences
- -Diversification for potential portfolio stability and risk mitigation
- -Cost-effective and accessible for investors of all levels
- -Limited potential for outperformance compared to actively managed funds
- -Less flexibility in adjusting to market changes
BLOGS
Mutual Fund Jargons for Mutual Fund Investors in India – A Formidable List
If you’re a beginner who’s just stepping into the world of mutual fund investing, you might feel a bit lost with all the jargon that’s commonly used. From CAGR to NAV and Alpha, these terms may seem alien - and frankly, overwhelming.
But worry not! Things are not as challenging as they seem. We’ve curated a comprehensive list of all the mutual fund jargon you need to know and understand to feel ready.
Basic Mutual Fund Terms
Mutual Funds
A mutual fund is a type of investment vehicle that pools money from multiple investors to invest in various asset classes, like stocks and bonds, in keeping with the investment objective of the scheme.
Net Asset Value (NAV)
NAV is short for Net Asset Value. It is the price of each unit of a mutual fund scheme. MF units are bought and sold based on the prevailing NAV. Unlike shares, where prices change constantly during trading hours, the NAV of a scheme is determined at the end of each day by the following formula:
NAV (in INR) = Market or Fair Value of Scheme's investments + Current Assets - Current Liabilities and Provision/ Number of Units outstanding under the Scheme on the Valuation Date
Assets Under Management (AUM)
AUM refers to the total market value of all the investments managed by a mutual fund scheme on behalf of its investors. It indicates the size of the fund and the amount of money it is currently managing.
Fund Manager
A fund manager is an experienced professional responsible for managing a mutual fund scheme and its investments on behalf of the investors. The fund manager makes decisions on asset allocation, stock or bond selection, and portfolio rebalancing in line with the scheme’s investment objective.
Expense Ratio
The expense ratio is the annual fee charged by a mutual fund for managing investments on behalf of the investor. It includes costs such as the fund’s management fees, administrative expenses, registrar fees, custodian costs, and other operating costs. The total expense ratio of the fund is calculated as a percentage of the scheme’s average NAV.
Exit Load
Exit load is a fee that’s charged by mutual fund schemes when investors redeem units within a specific time period, usually 15 days to a year or more. So exit loads work like a penalty and are aimed at discouraging investors from withdrawing too soon.
Entry Load
Entry load was a fee that was charged when buying mutual fund units. But SEBI abolished entry load back in 2009 to protect investors.
Benchmark Index
A benchmark index is a standard against which a mutual fund scheme’s performance is compared. For example, a large-cap fund may use the Nifty 50 as its benchmark. A fund’s benchmark index is selected at the time of launching the fund based on the fund’s objectives.
Portfolio
A portfolio is simply a collection of securities held by a mutual fund scheme. It is a list of assets that the fund has invested in. The fund manager is responsible for building and managing the scheme portfolio as per the fund’s investment objectives.
Asset Allocation
Asset allocation is the strategy used to distribute investments across various asset classes like equity, debt, and commodities. Asset allocation can be used in the context of an MF scheme to talk about how the scheme allocates between these asset classes. It can also be used for individual portfolios in reference to balancing potential risk and return with allocations.
Investment Methods
Systematic Investment Plan (SIP)
SIP is an investment route that allows you to invest a fixed sum of money at regular (monthly/weekly/daily) intervals into a mutual fund scheme. The goal is to invest consistently through market ups and downs, instead of trying to time the market. For most schemes, SIPs may start at a nominal value of about Rs. 500.
Systematic Withdrawal Plan (SWP)
SWPs allow you to withdraw a fixed amount of money from your mutual fund investment at regular intervals. This helps you receive a regular and predetermined income from your MF investments over time.
Systematic Transfer Plan (STP)
An STP allows you to transfer a fixed amount of money or a fixed number of units from one mutual fund scheme to another, provided both schemes are managed by the same AMC. Just like SIPs, STP transfers also take place on a prespecified date of the month.
Lump Sum Investment
A lump-sum investment refers to investing a large amount of money at one time into a mutual fund scheme. The minimum lump-sum investment amount depends on the scheme in question, but generally it's about Rs. 5,000.
Rupee Cost Averaging
Rupee cost averaging is an investment strategy where you invest a fixed amount regularly into a mutual fund scheme to buy more fund units when markets are low and fewer units when markets rise. Over time, this averages out the per-unit cost of your investment.
Risk & Return Concepts
Alpha
Alpha measures a fund’s excess return over its benchmark. If a fund has a positive alpha, it indicates that the fund has outperformed its benchmark index.
Beta
Beta measures how sensitive a fund is to market movements. Here’s what different Beta values mean:
Beta = 1 → moves with the market
Beta > 1 → more volatile than the market
Beta < 1 → less volatile than the market
Standard Deviation
Standard deviation is a statistical way of measuring how much a fund’s returns can deviate from its average return. It is used as an indicator for measuring volatility.
Sharpe Ratio
The Sharpe ratio measures a mutual fund’s return per unit of risk. So, it helps you understand the risk-adjusted returns of a fund. A higher ratio indicates better risk-adjusted performance.
Volatility
Volatility refers to the degree of fluctuation in a fund’s returns over time.
Downside Risk
Downside risk refers to the potential a mutual fund’s NAV to decline due to adverse market conditions. It measures the possibility and magnitude of such losses.
Diversification
Diversification is a risk management strategy where the investment is spread across assets to reduce concentration risk and potentially earn better returns. The idea is that all asset classes don’t behave the same way during periods of market volatility. So when one assets suffers and a different one may be able to balance things out.
Types of Equity Mutual Funds
Large Cap Mutual Funds
Large-cap mutual funds are equity-oriented MF schemes that invest at least 80% of total assets into large-cap stocks. Large-cap stocks are defined as stocks of the top 100 companies in the stock market by market capitalisation.
Mid-Cap Mutual Funds
Mid-cap funds are equity MF schemes that invest at least 65% of total assets in mid-cap stocks (101st–250th companies by market cap).
Small Cap Mutual Funds
Small-cap funds are equity schemes that invest at least 65% of total assets in small-cap stocks. Small-caps are stocks of companies ranked beyond the 250th rank by market cap.
Multi-Cap Mutual Funds
Multi-caps are equity-oriented MF schemes that invest at least 75% of total assets in large, mid, and small-cap stocks, maintaining a minimum 25% of total asset exposure to each market cap. The rest of the 25% can be invested in equity, money market instruments and other liquid instruments, gold and silver instruments as permitted by the Board and in InvITs, subject to the ceilings laid out in MF Regulations with respect to the respective asset class..
Flexi-Cap Funds
Flexi-cap funds are equity MF schemes that invest at least 65% of total assets in equities and equity-related instruments, without any restrictions on the minimum market-cap allocations. In other words, flexi-cap funds can decide the composition based on the market conditions and fund managers perspective.
Focused Funds
Focused funds is a type of equity mutual fund that invests in a maximum of 30 stocks. The fund invests at least 80% of total assets in equities and equity-related instruments, but selects stocks based on the focus mentioned in the SID (Scheme Information Document).
Sectoral Mutual Funds
Sectoral funds are mutual fund schemes that invest at least 80% of total assets in a specific sector. Banking and pharma funds are some examples of sectoral funds.
Thematic Mutual Funds
Thematic funds invest based on a selected theme. They allocate 80% of total assets in equities focused on a single theme like consumption or AI.
Hybrid Mutual Fund Terms
Balanced Advantage Funds (BAFs)
Also known as dynamic asset allocation funds, BAFs invest in equity/debt that is managed dynamically. They follow a dynamic allocation strategy where the fund manager can adjust equity and debt allocation based on market conditions.
Aggressive Hybrid Funds
Aggressive hybrid funds invest 65%–80% of total assets in equity, and the rest goes into debt between 20 and 35% of total assets. This high equity allocation may make them suitable for investors with a high risk appetite. For tax treatment, aggressive hybrid funds are treated as equity-oriented schemes.
Conservative Hybrid Funds
Conservative funds are a type of hybrid mutual fund that primarily invests in debt, maintaining a 75%–90% of total assets allocation to debt instruments like bonds. They can allocate 10%-25% of total assets in equities and equity related instruments as well. Since the debt allocation is higher at all times, these funds may be a suitable option for conservative investors seeking relative stability.
Debt Mutual Fund Terms
Liquid Funds
Liquid funds are debt MF schemes that invest in instruments with a short-term maturity of up to 91 calendar days. They can be redeemed easily, and investors often use them to park emergency funds.
Ultra Short Term Funds
These funds invest in debt and money market instruments with a Macaulay duration between 3 to 6 months.
Short-Term Funds
Short-term funds are schemes that invest in debt and money market instruments with a Macaulay duration between 1 to 3 years.
Long Term Funds
Long-term funds invest in debt and money market instruments that have a longer Macaulay duration of greater than 7 years.
Corporate Bond Funds
These funds invest at least 80% of total assets in the highest-rated corporate bonds (AA+ and above).
Gilt Funds
Gilt funds are schemes that invest at least 80% of total assets in government securities across different maturities.
Taxation Terms
Capital Gains Tax
Capital gains tax is the tax applicable to the profits you make from the sale/redemption of your mutual fund units. This tax can be short-term or long-term, depending on the type of fund in question and your holding period.
Short Term Capital Gains (STCG)
STCG is applicable to short-term profits booked on the sale of MF units. For equity funds, STCG is applicable at 20% if units are held for less than 12 months. For debt funds purchased on/after 1st April 2023, STCG is applicable at slab rates, regardless of the holding period.
Long Term Capital Gains (LTCG)
LTCG applies to long-term gains booked through the sale of units after 12 months. For equity funds, it’s applicable at 12.5% above the Rs. 1.25 lakh/year exemption limit. Debt funds (purchased after 1st April 2023) are always taxed at STCG.
Indexation
Indexation was a method used to adjust capital gains from mutual fund redemptions for inflation. However, indexation benefits aren’t available for investments made on/after 1st April 2023.
Mutual Fund Performance Metrics
Compound Annual Growth Rate (CAGR)
CAGR is the average annual rate at which an investment grows over a specific time window(longer than 1 year). It is typically used to assess the growth potential of a fund and assess past performance.
Rolling Returns
Rolling return is a method used to calculate the annualised average returns of a mutual fund scheme across multiple overlapping periods within an extended investment horizon. So it provides a dynamic perspective by assessing overlapping timeframes.
Trailing Returns
Trailing returns measure how the fund has performed between two specific dates (1Y, 3Y, or 5Y). So it sums up the historical performance of the fund.
Yield to Maturity (YTM)
YTM is the estimated return that might be made if a bond is held until its maturity date, expressed as an annual rate.
Modified Duration
Modified duration tells investors how much a bond’s price is likely to change when interest rates increase/decrease.
Regulatory & Industry Terms
Securities and Exchange Board of India (SEBI)
SEBI is the Indian market regulator responsible for the growth and regulation of the Indian securities market. SEBI oversees the Indian MF industry and prescribes its regulatory framework and rules.
Association of Mutual Funds in India (AMFI)
Established in 1995, AMFI is a non-profit self-regulatory body that represents all SEBI-registered AMCs. AMFI is responsible for promoting best practices in the mutual funds industry. It works closely with SEBI to protect investor interest and ensure compliance with MF regulations.
AMFI Registration Number (ARN)
ARN is a unique registration number issued by AMFI to each mutual fund distributor. It essentially helps confirm the distributor’s authorisation.
Know Your Customer (KYC)
KYC is a mandatory verification process that needs to be completed by the investor before they start investing in a mutual fund scheme. It is a one-time exercise to verify your identity, address, and other details.
Advanced Mutual Fund Concepts
Market Capitalisation
Market capitalisation is the total market value of a company’s outstanding shares. The current share price of the company is multiplied by the company’s total number of outstanding shares to reach the market cap value.
Growth Option
The growth option in a mutual fund scheme allows the profit earned from the investment to be reinvested into the scheme to compound over time.
Dividend Option (IDCW)
From 1st April 2021, SEBI renamed the dividend option to IDCW (Income Distribution Cum Capital Withdrawal). Under the IDCW option, a mutual fund may distribute surplus to investors, depending on availability and trustee discretion. But these payouts are not guaranteed. When IDCW is paid, the scheme’s NAV reduces.
Direct Plan
A direct plan allows you to invest in a mutual fund scheme directly through the AMC. It typically has a lower expense ratio because no sales and distribution commission related expense is charged to the plan.
Regular Plan
A regular plan means investing in a mutual fund scheme through a mutual fund distributor or agent. The expense ratio of regular plans tends to be higher due to distributor related expenses.
Lock-in Period
Lock-in period is the minimum amount of time during which you cannot redeem your investments from a mutual fund scheme. For instance, ELSS funds have a lock-in period of 3 years.
Conclusion
So now you know all the essential mutual fund terminology needed to get started with your investment journey. Just remember, this is just the beginning. This list is not an exhaustive one, and as you learn more about MF, you will likely come across more terms and concepts that need clarity. The key is to stay consistent and not be overwhelmed.
Disclaimer
An Investor Education and Awareness Initiative by Tata Mutual Fund.
To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh
Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’
All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login
Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process.
This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.
Mutual Funds Investors - Learning to Use a Mutual Fund Screener, Understanding Scheme Investment Strategy, and Start with SIP
Don’t put all your eggs in one basket!
It is a widely followed principle in investing, and mutual fund investors often apply it by diversifying across different asset classes. However, with a large number of mutual funds available across categories and sub-categories, selecting the “right” ones can become time-consuming and perplexing if done manually.
So, what’s the solution? This is where a mutual fund screener can be used. It is a digital tool that allows you to filter, compare, and shortlist funds using specific criteria.
Read this article to first learn what a mutual fund screener is and the various filtering criteria it offers. Next, learn how you can use it to shortlist schemes and start a SIP online in 2026.
What is a Mutual Fund Screener?
A mutual fund screener is an online tool that allows you to filter mutual funds based on different criteria or factors. Instead of going through hundreds of schemes one by one, the screener narrows the list based on your inputs.
For a better understanding, let’s check out the various factors you can apply:
| Factor | Explanation |
| Past Returns | Shows how the fund has performed over different time periods (1 year, 3 years, 5 years, since inception etc.) |
| Risk Level | Shows the risk level of the scheme. |
| Performance vs Benchmark | Compares the fund’s returns with its benchmark index (e.g., Nifty 50 for large-cap funds). |
| Performance vs Peers | Compares the fund with other funds in the same category. |
| Portfolio Concentration | Shows how the fund’s investments are spread across stocks or sectors. |
| Risk Ratios | Shows statistical measures like the Sharpe ratio, standard deviation, etc., that evaluate return relative to risk. |
| Category Averages | The average performance and risk metrics of all funds in a category. |
Note: This is only an illustrative list. The filtering options available on mutual fund screeners may vary across platforms.
How to Use a Mutual Fund Screener and Start a SIP in 2026?
Firstly, identify your investment objectives and risk tolerance. Usually, it depends on your:
Income stability
Financial responsibilities, and
Comfort with market fluctuations
In such an assessment, investors are usually classified as low, moderate, or high risk-takers. A high-risk investor may tolerate volatility for potentially higher returns, while a low-risk investor prefers relative stability. Such an analysis ensures that the funds you select match your risk appetite.
Next, follow these steps:
Step 1: Use a Mutual Fund Screener to Shortlist Funds
After identifying your investment objective and risk tolerance, use a mutual fund screener to shortlist schemes. You may begin by selecting the fund category (equity, debt, hybrid, etc.) that aligns with your risk level. Then apply filters such as:
Time horizon
Expense ratio
Fund size
Additionally, you can further refine results using “sub-categories” like large-cap, mid-cap, or hybrid funds. The mutual fund screener will now display a list of funds as per your filtering criteria.
You Can Even Apply “Advanced Filters”
Besides basic filtering, you can also narrow down your search using several advanced filters, such as:
Performance across different time periods
Returns in rising (bull) and falling (bear) markets
Sharpe ratio, Standard Deviation, or Maximum Drawdown
Performance vs. Benchmark vs. Peers
Category Averages, and more
By applying these advanced filters in the mutual fund screener, you can move beyond basic return comparison and evaluate the overall quality of a fund. It allows you to see:
How scheme has performed over time
How it behaves in different market conditions, and
Whether the returns justify the level of risk taken
Moreover, you can also assess if the fund is outperforming its benchmark and peers, rather than just appearing strong in isolation.
Step 2: Evaluate AMC Investment Strategy of Shortlisted Funds
Once you have shortlisted funds using the mutual fund screener, review the investment strategy of each scheme. Note that an Asset Management Company (AMC) launches and manages a mutual fund scheme as per its “investment objective” as defined in its offer document.
To make a thorough analysis of the shortlisted schemes, you may analyse the following documents:
Key Information Memorandum (KIM)
Scheme Information Document (SID)
Scheme Summary Document (SSD)
Statement of Additional Information (SAI)
These documents are usually available on the official AMC website. Some major parameters you can review in these documents are:
| Parameter | What to Check |
| Asset Allocation |
|
| Investment Style |
|
| Sector Allocation |
|
| Benchmark |
|
From your mutual fund list, remove the schemes that do not match your risk level, investment objective, or preferred asset allocation mix.
Step 3: Start an SIP in the Select Mutual Fund Schemes
After filtering the schemes using a mutual fund screener and further narrowing the list manually by analysing the AMC investment strategy, you now have a set of funds where you can start an SIP (Systematic Investment Plan).
In this investment method, you invest a fixed amount at regular intervals (e.g. daily, weekly, monthly or quarterly, etc.). This amount is automatically debited from your linked bank account without any manual intervention.
How to Start SIP Online?
To start an SIP online, you must first complete your KYC (Know Your Customer) verification on the official AMC website. This can be done by submitting documents, such as:
PAN and Aadhaar
Bank account details (usually along with a cancelled cheque or bank statement)
Address proof (passport, utility bill, or driving license)
Passport-sized photograph (digital format)
Post-successful verification, you can start an SIP after confirming the following:
Mutual fund scheme(s)
Investment amount (may start from as low as ₹100)
Investment frequency (daily, weekly, monthly, quarterly, etc.)
SIP start date
In most cases, you are also required to set up an “e-NACH mandate” for an auto-debit facility.
Conclusion
So now you know what a mutual fund screener is and how you can use it to shortlist mutual fund schemes. If we recap, it is a digital tool that displays different mutual funds, which investors can filter based on criteria such as AUM, expense ratio, investment time horizon, and sub-categories like large-cap, mid-cap, and more.
Once you have a few shortlisted schemes, you can further narrow down the list by reviewing the scheme investment strategy. Such an analysis can be made by referring to documents such as the Key Information Memorandum (KIM), Scheme Information Document (SID), and related disclosures available on the AMC website.
After this manual shortlisting, you may now have schemes in which you can start an SIP. This process can be initiated online by completing KYC requirements and setting up an e-NACH mandate for auto-debit of the SIP amount.
Disclaimer
An Investor Education and Awareness Initiative by Tata Mutual Fund.
To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh
Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’
All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login
Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process.
This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.
What is a Life Cycle Fund? Features, Advantages, and Who Should Invest
Many investors struggle to figure out the right time to move out of high-risk assets like equities when planning for long-term goals like retirement. Moving out too early may compromise potential returns, while moving out too late may expose your gains to sudden market fluctuations. That’s where life cycle funds come in.
Life cycle mutual funds aim to tackle this problem with a simple and predetermined glide path strategy that automatically adjusts asset allocation with an aim to balance risk gradually as you near your goal. Introduced by a SEBI circular dated 26th February 2026, life cycle mutual funds are designed for goal-based investing, like retirement planning. They will now replace the solution-oriented mutual fund schemes that existed before, making goal-based investing simpler.
So, if you are looking for a simple retirement planning mutual fund or planning for some other goal, you should understand life cycle mutual funds and how they may help you.
What are Life Cycle Mutual Funds?
A life cycle fund is a new category of open-ended mutual fund schemes introduced by the Indian market regulator SEBI. According to SEBI, life cycle mutual funds will:
Have a predetermined maturity ranging between 5 to 30 years
Follow a glide path strategy to automatically shift your asset allocation mix over time to align investments with specific financial goals
So, when you are far away from your goal, the fund may lean heavily into equities for potential growth. But as you inch closer to the maturity, it will gradually move into debt assets.. Life cycle mutual funds can invest in a variety of assets, including equities, debt, InvITs, ETCDs, Gold ETFs, and Silver ETFs.
As per SEBI, such funds can be launched for tenures in multiples of five years, and each AMC can have up to 6 life cycle mutual fund schemes active for subscription at any given time.
SEBI’s Asset Allocation Framework for Life Cycle Funds
The following table sums up the asset allocation framework laid out by SEBI for life cycle mutual funds:
Example : For Life Cycle Funds with maturity of 30 years
| Years to Maturity | Investment in Equity (%) | Investment in Debt (%) | Investment in Gold / Silver ETFs / ETCDs / InvITs (%) |
| 15 to 30 Years | 65% to 95% | 5% to 25% | 0% to 10% |
| 10 to 15 Years | 65% to 80% | 5% to 25% | 0% to 10% |
| 5 to 10 Years | 50% to 65% | 5% to 25% | 0% to 10% |
| 3 to 5 Years | 35% to 50% | 25% to 50% | 0% to 10% |
| 1 to 3 Years | 20% to 35% | 25% to 65% | 0% to 10% |
| Less than 1 Year | 5% to 20% | 25% to 65% | 0% to 10% |
SEBI’s circular lays out specific asset allocation guidelines for each maturity tenure. AMCs must stick to these allocation rules when launching and operating the life cycle fund.
Understanding the Key Features of Life Cycle Mutual Funds
Let’s have a look at the key features and characteristics of life cycle funds, as prescribed by SEBI:
Fixed Maturity Tenures
Starting with a minimum of 5 years, AMCs can launch life cycle funds with tenures in multiples of 5 years, up to a maximum of 30 years. So the varied tenure options include 5, 10, 15, 20, 25, and 30 years.
Moreover, as per SEBI’s guidelines, the life cycle mutual fund scheme must list the fixed maturity year in the name of the fund. For example, a life cycle fund may be named “Life Cycle Fund 2040,” indicating that the fund is designed to mature in the year 2040.
Structured Exit Loads
SEBI has also introduced a stricter exit load structure for life cycle funds, primarily to discourage investors from exiting their investment early. So, if you exit early, you’ll have to pay the following exit loads:
Exit within 1 year of investment: 3%
Exit within first 2 years of investment: 2%
Exit within first 3 years of investment: 1%
This is also done to help inculcate better financial discipline among investors to keep them focused on achieving long-term goals.
Fixed Asset Allocations
As mentioned earlier, SEBI has set fixed asset allocation rules for each life cycle fund tenure. It has defined how much of the fund’s assets may be invested in equities, debt, and gold/silver ETFs, ETCDs, or InvITs based on the years to maturity. This allows standardisation in the glide path followed by life cycle funds.
Investment in High-Quality Debt
Life cycle funds can invest in only high-quality debt assets, and there are specific rules around the maturity windows of these assets as well. Here’s what SEBI mandates in terms of debt investments in life cycle mutual funds:
Life cycle funds can invest in AA or higher-rated debt assets only
These debt assets should have a maturity that’s less than the target maturity of the fund
Benchmarking
As per SEBI, life cycle mutual funds must follow the benchmark framework as prescribed for as multi-asset allocation funds. This is because SEBI recognises that different life cycle funds from different AMCs may have varying underlying asset allocations.
Merging Near Maturity
When a life cycle fund has less than one year remaining to its maturity, it may be merged with the nearest maturity life cycle fund. But this can only be done with the consent of the unitholders.
Advantages of Life Cycle Mutual Funds
The key benefits of life cycle mutual funds are listed below:
Automatic Rebalancing
The life cycle fund automatically rebalances based on the glide path strategy and asset allocation rules outlined by SEBI..
Easy Risk Management
Life cycle funds automatically reduce equity exposure as the fund nears its target maturity date. This way, it aims to reduces risk as you get closer to your goal, which may protect your corpus from unexpected market ups and downs.
Aids Goal-Based Planning
Life cycle funds are built with goal-based investing in mind. You can align your investment with a specific financial milestone, such as retirement, a child’s higher education, or another goal. Moreover, life cycle funds aren’t just for super long-term goals. These funds have varied maturities of 5, 10, 15, 20, 25, and 30 years. So you can even use them for goals that are 5 or 10 years away!
Simple and Convenient
Life cycle mutual funds follow a set-and-forget approach where you simply have to choose a scheme that aligns with the time horizon of your goal and start investing. Once that’s done, the fund manager takes care of all other aspects, including portfolio rebalancing.
Transparent Structure
Life cycle mutual funds follow the rules and regulations laid down by SEBI. So you know exactly how the fund allocates your money, and there is complete transparency.
Who may invest in Life Cycle Funds
Here’s who may invest in life cycle funds:
Investors who have a clear, time-bound goal, like planning their child’s college education
Investors with a long-term goal like retirement
Investors looking for a diversified and disciplined investment approach
Life Cycle Funds: An Example
Let’s assume you have 30 years until retirement and decide to invest in a 30-year life cycle fund to build your retirement corpus. As the years pass and you move closer to your goal, the fund gradually shifts its allocation from equity toward debt to reduce risk.
Here is how the allocation may evolve:
15–30 years to maturity: The portfolio remains growth-oriented, with 65%–95% invested in equity, 5%–25% in debt, and up to 10% in other assets such as InvITs, ETCDs, Gold ETFs and Silver ETFs.
10–15 years to maturity: Equity exposure moderates to 65%–80%, while debt remains between 5%–25% and other assets up to 10%.
5–10 years to maturity: Equity allocation gradually reduces to 50%–65%, with 5%–25% in debt and up to 10% in other asset classes.
3–5 years to maturity: The portfolio becomes more balanced, with 35%–50% in equity, 25%–50% in debt, and up to 10% in other assets.
1–3 years to maturity: As the goal approaches, equity exposure reduces further to 20%–35%, while debt increases to 25%–65% to help reduce volatility. Other assets can remain up to 10%.
Less than 1 year to maturity: The fund becomes more conservative, with 5%–20% in equity, 25%–65% in debt, and up to 10% in other assets.
In this way, the life cycle fund automatically adjusts the asset allocation over time, gradually reducing equity exposure and increasing debt allocation as the investment approaches maturity.
Conclusion
SEBI introduced life cycle funds to replace earlier solution-oriented categories that had static allocation problems. Life cycle mutual funds will automatically align asset allocation with your life goals, potentially simplifying goal-based mutual fund investing. This may help eliminate:
Asset allocation decisions
Timing errors
All you have to do is decide on the time horizon of your goal and choose a corresponding fund with the similar duration (in multiples of 5 years) to get started.
Disclaimer
An Investor Education and Awareness Initiative by Tata Mutual Fund.
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Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process.
This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.
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