Definition
IDCW vs Growth Option
Growth reinvests all gains so your NAV compounds, while IDCW (Income Distribution cum Capital Withdrawal) pays out periodic amounts that reduce your NAV.
SEBI renamed the old dividend option to IDCW to clarify that payouts include a return of your own capital, not just profits. Under IDCW, each payout lowers the NAV by the amount distributed.
For most long-term investors the growth option is more efficient, since money stays invested and compounds. IDCW payouts are taxed at your slab rate, making growth generally more tax-friendly. Choose IDCW only if you genuinely need regular cash flow, though a SWP is often a better way to do that.
Related terms
- SWP (Systematic Withdrawal Plan)An SWP lets you withdraw a fixed amount from a mutual fund at regular intervals, creating a steady cash flow.
- Dividend Yield FundA dividend yield fund is an equity mutual fund that, under SEBI rules, must keep at least 65% of its assets in stocks with high and consistent dividend payouts. It targets companies that share profits generously rather than chasing pure growth.
- CompoundingCompounding is when your returns themselves earn returns, accelerating growth the longer you stay invested.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.