Difference Between IDCW vs Growth in Mutual Funds

When investing in mutual funds, you often choose between IDCW and Growth options. The IDCW option is about regular payouts, generating a steady income. Growth, on the other hand, reinvests the profits, which helps the investment grow over time.

Both options serve different purposes, but the right choice depends on your needs. Knowing that they will give you smarter investment decisions and maximize returns. This article unravels the intricacies of both, making investment decisions effortless.

The IDCW option of a mutual fund allows the investor to receive periodic payouts as dividends. The mutual fund distributes income to its investors. This money is generated by the fund's investments, usually quarterly, semi-annually, or annually.

While the fund provides regular income, it withdraws part of the capital invested to service the payouts. It is suitable for investors, such as retirees, who need a steady income stream. IDCW results in the erosion of the corpus as a whole over time due to capital withdrawal.

The growth option matches investors' long-term capital appreciation aim. This option gives the returns the fund raises in terms of dividends and capital gains. It does not distribute the amounts to investors.

Investment avails the compounding of years. This results in excellent accumulation of wealth over the very long term. The growth option would work well with investors not obligated to the present income. It works if you want to invest in maximizing returns with reinvestment.

Yes, you can switch between an IDCW option (Income Distribution and Capital Withdrawal) and a Growth option through the same mutual fund plan. This is referred to as an "intra-scheme switch." This means changing the type of plan within the same mutual fund, wherein your units in the IDCW option are converted into units of the Growth option at the current NAV (Net Asset Value).

One can switch from IDCW to Growth by requesting a mutual fund company or distributor. The primary latter uses the switch form or the various online platforms. Selling isn't involved in the switch since it is a conversion. Therefore, no capital gains tax will be accrued unless one sells or redeems units. However, this can carry some tax implications in case there might be capital gains when one switches and has changed the underlying assets.

In conclusion, choosing between the two depends on an investor's investment and income goals. If an investor desires a regular source of income, like retirees, then the IDCW option is better for them, whereas the Growth option is suitable for long-term wealth creation and compounding. Each has merit, and knowing your financial needs and risk tolerance can help you make the appropriate decision.

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