OM Financial Consultant

Have you ever wondered about the IDCW option and Growth option while picking mutual funds? If so, don’t think you are alone. Often investors especially novice mutual fund investors get confused about these two options. If mutual fund plans have to be categorised broadly, then these are the two options and this article will discuss both options in detail so that the next time you pick a mutual fund for investment, you know which one to choose for your investment portfolio.

What is the Growth option?
The Growth option in mutual funds refers to the reinvestment of profits made by the fund. A mutual fund invests in different securities to generate returns. When the returns are positive, the profit is reinvested under this Growth option which makes the NAV of the mutual fund grow further thus it is referred to as a Growth option in mutual funds. The profits can include dividends, interest on bonds and of course the increase in the securities price from the value at which the investment was made.

What is the IDCW option?
The IDCW option stands for Income Distribution Cum Withdrawal Plan under which the profits made by the mutual fund are distributed to the mutual fund investors periodically. As per SEBI, the profits made by the mutual fund have to be used for paying dividends to the mutual fund holders as per specified intervals. The payments are made usually on a monthly, quarterly, annual or daily basis depending on the interval mentioned in the mutual fund documents.

Earlier IDCW plans used to be known as the Dividend option. However, due to the concept of dividends in the stock market, investors used to get confused and many misconceptions were there about the dividend option. So, SEBI changed the name of the dividend option to IDCW option which categorically indicates that if an investor is opting for it, he or she will be withdrawing capital invested by them.

As mentioned above the profits of a mutual fund comes from capital appreciation as well as dividends and interest received on the underlying securities. In mutual funds, all these increase the NAV, and any withdrawal will cause the NAV to drop. So, if you were thinking that opting for the IDCW plan means getting regular income without affecting your investment valuation, then that’s a misconception.

How are these two different from each other?
The name itself of these two plans depicts the differences between them, one is about growth while another is about income and withdrawal. The basic difference is about the reinvestment of profits made by the mutual fund. While the Growth plan reinvests the profits made by the fund, on the other hand, IDCW distributes the profit at regular intervals to its investors.

Coming to the NAV, it is higher in the case of the Growth plan as the profits are reinvested, and due to the power of compounding. Alternatively, the NAV of the IDCW plan drops after every payout of the dividends. Here dividends mean the profit made by the fund.

If you look at the total returns generated by the fund under both these plans, then under IDCW, the total return will be lower due to the loss of compounding effect. The profits are distributed and the NAV falls and compounding takes place on this NAV while under the Growth option, compounding takes place on the higher NAV. Thus the total return in the case of the Growth option is always higher compared to the IDCW option.

Which one to choose for your investment portfolio?
Mutual funds are usually taken up for long-term investment where you want to see your capital appreciate and after a specific tenure, you want to use the accumulated corpus. For this investment objective growth plan is suitable as it helps your investment to grow over the long term.

However, if you are looking for regular income from your mutual fund investment, then you can opt for the IDCW plan where you will the profits made by the fund from time to time.

However, you also need to consider the tax effect of these two plans. While profits made under the Growth option are taxable as per the long-term or short-term capital gain taxes according to the tenure of investment and the type of fund, the profits distributed under the IDCW plan are taxable at the hands of the investor as per the tax slab the investor falls into.

Can you switch from the IDCW option to Growth Option or vice versa?
You can switch from the IDCW plan to the growth plan or vice versa but it will be considered as redemption from one plan and purchase of the other. So, exit load will be levied if any as well as tax implications will be there. So, before switching from one plan to another, make sure, you evaluate the overall benefit of the same.

Conclusion
Mutual funds are becoming the most loved investment instruments especially with the help of digitalization and due to the growth prospects of the country as well as increasing financial literacy rate. However, making the right choice of funds is the primary thing to keep in mind for making your investment work for you and not against you. So, before picking your next investment, evaluate, whether you need a Growth plan or an IDCW plan.

As you can see in the above example, In the IDCW plan, the value of the investment is lower than the Growth plan due to the distribution of the profits. Now the NAV of the fund under the IDCW plan will fall to the extent of the dividend declared and paid.

Punjab & Sind Bank: planning to double its ATM network to about 1,600 in the next 2 years.

Tejas Networks: got a Rs 7,500 cr purchase order from TCS to supply 4G/5G equipment for BSNL.

IndiGo: promoter Gangwal family sold some of its stake today.

Abhijit Chakravorty has taken charge as the new Managing Director and Chief Executive Officer, of SBI Card effective from August 12, 2023, the company said in a press release on August 16.

Chakravorty has taken over from Rama Mohan Rao Amara, who spent over two and a half years in SBI Card, the release said.

+India made its first INR payment for crude oil. Indian Oil made this payment to Abu Dhabi National Oil.

+Due to decreased consumption, petrol, and diesel sales have declined for two consecutive months.

+Banks' lending to NBFCs jumped 35% to Rs 14.2 lakh cr in June 2023.

+India has approved 7 multi-tracking (railways) projects worth Rs 32,500 cr. This will increase the existing network of Indian Railways by 2,339 km.

+India's cabinet has approved an expenditure of Rs 57,613 cr for 10,000 new e-buses.

+Boeing has started production of the Indian Army's Apache helicopters. The company will deliver 6 AH-64E Apaches to the Indian Army.

+India approved a new Digital India project with an outlay of Rs 14,903 cr where 5.25 lakh IT professionals will be up-skilled and 2.65 lakh persons will be trained.

+SBFC Finance IPO listed at a premium of 43.8% on NSE.

NOT FINANCIAL ADVICE nd we are not SEBI registered.

The information contained on this page and the resources available for download through this Page is not intended as, and shall not be understood or construed as, financial advice. I am not an attorney, accountant or financial advisor, nor am I holding myself out to be, and the information contained on this Website is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.

We have done our best to ensure that the information provided on this page and the resources available for download are accurate and provide valuable information. Regardless of anything to the contrary, nothing available on or through this Website should be understood as a recommendation that you should not consult with a financial professional to address your particular information. The Company expressly recommends that you seek advice from a professional.

Indian markets closed flat.

Media and realty stocks rose the most. Metal and private bank stocks fell the most.

Asian markets fell: Japan and Hong Kong markets fell the most.

USD-INR exchange rate (forex) market was closed today on account of Parsi New Year.

Black day for

Nifty on the closing day of the year 📊

• 2001 1059
• 2005 2837
• 2007 6139
• 2008 2959
• 2009 5201
• 2011 4624
• 2014 8283
• 2015 7946
• 2018 10863
• 2019 12168
• 2020 13982
• 2021 17354
• 2022 18105

Reliance: has acquired Metro AG's India business for Rs 2,850 cr.

The National Pharmaceutical Pricing Authority has capped the prices of 127 medicines. The price of paracetamol (650 mg) has been capped at Rs 1.8 per tablet vs Rs 2.3 before.

Sula Vineyards listed on the NSE at Rs 361 per share - a 1.1% premium compared to its offer price of Rs 357. On BSE, it listed with a premium of 0.28%

+Last date to apply for Sovereign Gold Bond (SGB) Scheme is Dec 23. The price for series III is Rs 5,359/gram. Investors also get 2.5% annual interest in addition to the potential rise in gold's price.

+Elin Electronics IPO was subscribed 3.09 times. Retail investors subscribed 2.20 times. Listing is expected on 30 Dec.

The markets ended red today.

All sectors were in the red with metal, auto, PSU Bank, and realty sectors falling the most.

This may be a continued effect from yesterday.

Asian market sentiments are finally improving with some of them closing in the green.

The telecom operator launched 5G Plus services at no-extra cost in Lucknow, Uttar Pradesh.

The company announced sale of its housing subsidiary Poonawalla Housing Finance to private equity major TPG for Rs 3,900 crore.

The government will sell up to 5% stake in IRCTC through an offer for sale (OFS).

Company’s board approved a proposal to invest Rs 330.61 crore in a transmission project.

The company inked a pact with Everest Fleet Pvt Ltd to supply 5,000 units of XPRES-T EVs.

Wipro announced the launch of a new financial services advisory company, Capco in the Middle East

Landmark Cards: IPO was subscribed 0.39 times on day 2.

Abans Holdings: IPO was subscribed 0.46 times on day 3.

Penny stocks: when the price of each stock is below Rs 10 in India and below $1 in the US.

Do note, just because a stock is a penny stock does not mean it is a good or bad investment.

Dividend vs non-dividend stocks: some stocks are famous for giving regular dividends while some don’t give dividends at all.

A founder is someone who starts the company. All founders are not CEOs.

CEO stands for Chief Executive Officer.

The CEO is the highest-ranking executive in a company who makes all the major corporate, operational, and financial decisions.

The CEO is the presiding head and is appointed by the board of the company.

When a company is started, one of the founders usually becomes the CEO. If he/she performs well, he/she stays on as a CEO. Example: Mark Zuckerberg.

Independent Director
Word of the Day

Any non-executive director of a company who does not have any relationship with the company is called an independent director.

The person only receives remuneration from the company and is not involved in the decision-making of the business (hence is non-executive).

They are only appointed for taking advice regarding the business or due to legal requirements so as to make sure there is additional supervision on the company.

Other stocks in the news

IDBI Bank: the Indian govt clarified that it will allow a consortium of foreign funds and investment firms to own more than 51% stake in the bank.

Canara Bank: raised its marginal cost of funds-based lending rate (MCLR) on loans.

Maruti Suzuki: announced the recall of around 9,000 vehicles due to possible defects in seat belts.

JSW Energy: commissioned a wind project in Tamil Nadu.

Dish TV: appointed 3 independent directors. Will start its Annual General Meeting on Dec 29.

Biocon Biologics: appointed Shreehas Tambe as MD & CEO.

+The European Union has reached a deal to ban the import of products which contribute to deforestation around the world.

+India's palm oil imports jumped 29% in November from a month ago, as per a media report.

+Aditya Mittal from Mumbai is India’s 77th Chess Grandmaster.

+India's thermal power generation rose by 16% to 87,687 MU in November.

+The Indian govt is on track to meet its fiscal deficit target of 6.4% of the GDP for 2022-23: World Bank.