ICICI Prudential Life Cycle Funds NFO closes Sept 9: How the new goal-based funds work

With the New Fund Offer (NFO) of ICICI Prudential Mutual Fund’s three Life Cycle Funds set to close on September 9, investors have three maturity options to choose from, depending on the timeline of their financial goals. The schemes are designed around a predefined glide path that changes the portfolio’s asset allocation as the maturity year approaches.

The fund house has launched ICICI Prudential Life Cycle Fund 2031, Life Cycle Fund 2036 and Life Cycle Fund 2041, with maturity horizons of five, 10 and 15 years, respectively. The NFO opened on August 26 and will close on September 9.

How the three funds differ

The key difference between the schemes is their maturity year and corresponding equity allocation. The 2031 fund is designed for a five-year horizon, the 2036 fund for 10 years and the 2041 fund for 15 years. A longer maturity allows the fund to maintain a higher equity allocation during the initial years.

For the 2031 fund, equity and equity-related exposure is 35%-50% when three to five years remain, falling to 20%-35% when one to three years remain and 5%-20% in the final year. Debt and money-market allocation correspondingly rises as maturity approaches.

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The 2036 fund starts with 50%-65% equity exposure when five to 10 years remain. This reduces to 35%-50% at three to five years, 20%-35% at one to three years and 5%-20% during the final year.

The 2041 fund, with the longest horizon, begins with equity allocation of 65%-80% during the first five years. After five years, the net equity allocation moves to 50%-65% for the next five years and progressively declines as the fund gets closer to maturity.

What is the glide path?

A glide path is a predefined asset-allocation framework that gradually reduces equity exposure over the investment period. The idea is to allow investors to take relatively higher equity exposure when the goal is far away, while becoming more conservative as the goal date approaches.

This is aimed at addressing a common challenge in goal-based investing: deciding when to shift money from equities to relatively more stable assets. The fund documents note that investors may remain heavily invested in equity even when a financial goal is close, or become conservative too early and potentially miss growth opportunities.

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Multi-asset portfolio

The schemes can invest across equity, debt, money-market instruments, InvITs, ETCDs and Gold and Silver ETFs. Exposure to InvITs, ETCDs and Gold and Silver ETFs is capped at 10% of net assets.

The funds are open-ended and do not have a lock-in period, although investors are recommended to remain invested until maturity to benefit from the glide-path strategy.

Investors should also note that an exit load applies for the first three years: 3% within one year, 2% within two years and 1% within three years, with no exit load after three years.

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