Mutual Fund Investors are coming to Financial Experts and Chartered Accountants and asking the questions like-What is IDCW in Mutual Fund ? Other related questions being asked by the people in this regard are given below:
- Which is better growth or IDCW?
- What does IDCW mean in mutual fund?
- Can we convert IDCW to growth?
- What is the benefit of IDCW mutual fund?
- Is IDCW taxable in India?
In this article we will explain everything about the IDCW and will also answer all the possible questions of Mutual Fund Investors including the most frequently asked question-What is IDCW in Mutual Fund?
IDCW stands for Income Distribution cum Capital Withdrawal. It is a new term introduced by the Securities and Exchange Board of India (SEBI) in April 2021 to replace the term “dividend” in mutual funds. The change was made to make it clear to investors that when they invest in a dividend option, they are not actually receiving any extra income. Instead, the money they receive is being taken out of their own capital.
When you invest in a mutual fund, you are buying units of a portfolio of stocks or other securities. The fund manager invests these funds and generates income in the form of dividends, capital gains, or interest. In the past, if you invested in a dividend option, the fund manager would distribute some of this income to you in the form of a dividend. This would reduce the value of your units by the same amount.
With IDCW, the fund manager still generates income from the fund’s investments. However, instead of distributing this income to you in the form of a dividend, the fund manager can choose to either reinvest it in the fund or distribute it to you in the form of a capital withdrawal. A capital withdrawal is a payment made to you from the fund’s capital. This means that the payment is made from the money that you invested in the fund, rather than from the income that the fund has generated.
There are a few reasons why you might want to choose IDCW over a dividend option. First, IDCW can help you to grow your investment faster. When the fund manager reinvests the income in the fund, it is used to buy more units. This increases the number of units you own, which in turn increases your investment’s value. Second, IDCW can help you to reduce your tax liability. When the fund manager distributes income to you in the form of a dividend, you may have to pay taxes on this income. However, when the fund manager reinvests the income in the fund, you do not have to pay taxes on this income until you sell your units.
Of course, there are also some potential drawbacks to IDCW. First, you may not receive any income from the fund until you sell your units. This can be a problem if you need income from your investment on a regular basis. Second, the value of your investment may fluctuate more with IDCW than with a dividend option. This is because the fund manager’s decision to reinvest or distribute income can affect the value of the fund’s units.
Ultimately, the decision of whether to choose IDCW or a dividend option is a personal one. You should weigh the pros and cons of each option and choose the one that is right for you.
Here are some additional things to keep in mind when considering IDCW:
- IDCW is not available for all mutual fund schemes.
- The amount of income that you receive from IDCW will depend on the performance of the fund’s underlying investments.
- You may have to pay taxes on income that you receive from IDCW.
- IDCW can affect the value of your investment.
If you are considering IDCW, it is important to understand the risks and benefits involved. You should also talk to a financial advisor to get personalized advice.
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