Mutual Funds

What is the Difference Between IDCW and Growth?

By admin
21 November 2024
3 mins read

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What is the Difference Between IDCW and Growth?

Mutual funds are a suitable option for investors looking to grow their wealth without having an expert understanding of the stock market. You can select from various mutual funds to invest in as per your financial goals, risk appetite, and investment horizon.

However, to make an informed investment decision, it's crucial to understand the different options available for mutual funds. Two popular options that investors often consider are growth and income distribution cum capital withdrawal (IDCW).

In this article, we'll explore the difference between growth and IDCW in mutual funds to help you select the option that best suits your needs.

What is the growth option in mutual funds?

Mutual funds invest in various securities to optimise their portfolios and generate returns. If you select a mutual fund with a growth option, the portfolio's returns are reinvested into the fund, increasing its Net Asset Value (NAV). This helps you benefit from the power of compounding and generate potentially higher returns over time.

The growth option is suitable for investors who do not need to generate regular income from their investments and wish to remain invested for the long term.

What is the IDCW option in mutual funds?

The primary difference between IDCW and growth mutual funds is that the portfolio's profits are distributed among the investors at regular intervals. Depending on the terms outlined in the scheme documents, this could be daily, monthly, quarterly, or annually.

While IDCW is a suitable option if you're looking for regular cash flows from your investments, it's important to remember that the payouts may not be recurring as they depend on factors like total profit, available distributable surplus, etc.

IDCW vs growth: Understanding the difference

Here's a detailed breakdown of IDCW and growth differences in mutual funds:

Factor	Growth	IDCW
Income distribution	Profits realised from these funds are reinvested into the portfolio for potential capital appreciation.	Profits realised from these funds are distributed among the investors at regular intervals according to the scheme's policy.
Returns	Potentially higher returns due to the compounding effect of reinvesting.	Comparatively lower returns as investors only receive a small part of the profits.
Capital withdrawal	Typically unavailable as the capital remains invested for the long term.	Both capital and returns can be withdrawn.
Taxation	Gains are taxed only when you redeem your mutual fund units.	Returns are taxed as per your applicable tax slab.
Risk	Higher risk as you don't receive any payouts, exposing your entire capital to market fluctuations.	Lower risk as regular payouts act as a financial cushion.

IDCW or growth: Which is better?

Both IDCW and growth cater to different investment styles. Therefore, when comparing IDCW vs growth mutual funds, it's essential to consider your preferences, risk appetite, and investment horizon. You must also consider your financial goals and tax implications to make an informed decision.

You can also compare different options on Tata Capital Moneyfy to select a mutual fund scheme that best fits your needs. For more information, visit the Tata Capital Moneyfy website or download the mobile App today!