Confused between growth and IDCW options in mutual funds? Check 4 key differences

At the time of investing in mutual funds, each scheme requires you to choose between two options— ‘growth’ and ‘IDCW’ (income distribution cum capital withdrawal). Many investors end up making a random selection as they do not understand the implications of opting for either. Let’s find out how these differ so you can make an informed choice, as reported by ETWealth.

In a mutual fund’s growth option, the profits earned are reinvested into the fund. This means your investment keeps earning on itself over time, helping the total amount grow bigger. As the fund adds these earnings, its net asset value (NAV) goes up, which is why it’s called the ‘growth’ option.

In the IDCW option, part of the fund’s profits or gains is paid out to investors instead of being reinvested. These payouts aren’t guaranteed and reduce the fund’s NAV, limiting long-term growth. SEBI introduced IDCW to clarify that the payments come from the investor’s own capital and earnings.

In the case of a growth option, the earnings or profits are reinvested, whereas in case of an IDCW option, it is distributed among investors.

In the case of a growth option, the NAV increases over long periods, whereas in the case of an IDCW option, it is reduced or remains static. The dividend is already distributed.

In the case of the growth option, earnings are taxed as long-term or short-term capital gain only at redemption, whereas in the case of the IDCW option, earnings are taxed as per the slab rate.

Those who are looking for long-term capital growth should consider the growth option, whereas those looking for periodic income should choose the IDCW option.