Seasoned mutual fund investors might be familiar with the ‘Dividend Option’ that mutual fund companies offer, wherein the dividends aren’t reinvested but rather distributed among unitholders. As of 2021, this option has been renamed to ‘Income Distribution cum Capital Withdrawal Plan’ or the IDCW Plan.
This change in nomenclature has naturally caused some confusion among investors. If you’re wondering what is meant by IDCW in mutual funds, or what is an IDCW plan, you’re in the right place.
Here we discuss everything you need to know to clear the fog, from IDCW’s meaning and why SEBI changed the name of Dividend Option to how they work.
If you’re wondering exactly what is IDCW in MF, it is simply what ‘Dividend Option’ was previously. With mutual fund investment, you can choose how you want to receive your earnings. IDCW offers two options in this regard:
SEBI notified investors of this change via a circular in April'21, with the aim of giving more clarity to investors. You see, a novice investor might understand that ‘Dividend Option’ means that the mutual fund will pay dividends like stocks do. This is incorrect.
The new name- IDCW, highlights that the income distributed to investors is not dividends but their own money which includes the investment returns as well as dividends paid by companies.
Now that you know what is IDCW and IDCW meaning in mutual fund, here are some points to keep in mind:
While IDCW plans (formerly known as Dividend Option) don’t offer any additional benefit, after discussing IDCW’s meaning in mutual funds and how it works, it is clear that IDCW mutual fund schemes are a profitable alternative to regular investments such as sovereign savings schemes and fixed deposits.