In simple terms, IDCW allows mutual fund investors to receive periodic payouts from their investments. These payouts can come from the income earned by the fund or by withdrawing a part of the invested capital. Unlike growth plans, where returns are reinvested, IDCW plans distribute earnings to investors at regular intervals—monthly, quarterly, or annually. This makes IDCW attractive for those seeking liquidity or a steady income stream.
However, it’s important to understand that IDCW payouts reduce the fund’s Net Asset Value (NAV) because the amount distributed is deducted from the fund’s corpus. This brings us to Corpus Funds, which represent the total pool of money invested in a mutual fund scheme. When IDCW is paid out, the corpus decreases, potentially impacting long-term compounding benefits.
Key Points About IDCW:
- Not Guaranteed: IDCW payouts depend on fund performance and available surplus.
- Tax Implications: IDCW is taxed in the hands of the investor as per applicable slab rates.
- Impact on Corpus: Frequent withdrawals can erode the fund’s size and future growth potential.
IDCW vs Growth Option:
- IDCW suits investors who need regular cash flow.
- Growth option is better for those focused on wealth accumulation over time.
In short, IDCW offers flexibility and liquidity, but investors should weigh its impact on the fund’s corpus and long-term goals. If you want consistent income without compromising too much on growth, IDCW can be a useful choice—provided you understand its implications.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.