Mutual Fund Compare

Growth vs IDCW (dividend) option in mutual funds

Written and reviewed by Omm · Last reviewed · General information, not investment advice

Every scheme (and each of its Direct and Regular plans) offers two or more options for what happens to the gains.

Growth option

All gains stay invested. You receive nothing until you redeem. The NAV keeps rising, and you pay capital gains tax only when you sell. This is the simplest option and the one most long-term investors use, and it is the default view in this site’s screener.

IDCW option

IDCW (Income Distribution cum Capital Withdrawal), formerly called the Dividend option, pays out part of the fund’s value from time to time. There are usually variants: payout (money sent to your bank), reinvestment (the payout buys more units) and sweep.

Important points:

  • The NAV falls when IDCW is paid. If the NAV is ₹20 and ₹1 is distributed, the NAV becomes ₹19. Your total value is unchanged; you now hold ₹19 in the fund and ₹1 in cash.
  • Payouts are not guaranteed and can come from your own capital, not only from profits.
  • IDCW is taxed in your hands at your income tax slab rate when received, unlike Growth, where tax applies only on selling. See mutual fund taxation.

Why IDCW funds look worse on a NAV chart

Return figures calculated from NAV, which is what a screener can do, ignore the cash paid out. An IDCW fund’s NAV therefore looks weaker than its Growth twin even though the holder received the difference as payouts. Some IDCW options pay out large amounts, which shows as a sudden drop in NAV.

For this reason the screener defaults to the Growth option, and IDCW fund pages carry a note that their returns are NAV price returns. To judge a scheme’s total return, look at its Growth option.

Which should you pick?

If you want your money to compound without interruption, Growth is usually the straightforward choice. IDCW may suit someone who wants periodic cash flow, but a systematic withdrawal plan from a Growth option gives more control over amount and tax. Try the SWP calculator to see how long a corpus can support regular withdrawals.

Frequently asked questions

What does IDCW stand for?

IDCW stands for Income Distribution cum Capital Withdrawal. It is the name SEBI gave from 1 April 2021 to what used to be called the Dividend option, to make it clear that the payout can come from your own capital and not only from profits.

Is IDCW the same as getting a dividend from a company?

No. A mutual fund IDCW is paid out of the fund's own assets, so the NAV falls by the amount paid. You are not receiving anything extra; part of your investment is simply handed back to you. A company dividend is a share of profits and does not reduce your ownership.

Is IDCW paid regularly?

Not necessarily. The fund house decides whether to pay and how much. A payout is not guaranteed even if the scheme paid in earlier months.

Which option has the higher return?

In the same scheme the Growth and IDCW options hold the same portfolio. Growth keeps everything invested, so its NAV grows faster. The IDCW NAV grows less because money is paid out. Total value, payouts included, is similar before tax; what differs is timing and tax.

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