IDCW means ‘Income Distribution Cum Capital Withdrawal’ and was earlier known as ‘Dividend Option’ in mutual funds, where investors had the option to choose either ‘dividend payout’ or ‘dividend reinvestment’. From April 2021, this has been changed to IDCW by the Securities and Exchange Board of India (SEBI). Mutual fund schemes offer either ‘Growth’ or ‘IDCW’ options. The IDCW option refers to income distribution from a mutual fund scheme from its own profits.
Some features of IDCW Mutual Fund schemes are:
1. The IDCW scheme portfolio is the same as it is for the ‘Growth’ option.
2. In the IDCW option, the scheme declares a payout in the form of dividend from its accumulated profits, while in the growth option, the fund reinvests the profits of the scheme and there will be no payout.
3. The Net Asset Value (NAV) of the IDCW scheme goes down proportionately after dividend payout.
IDCW has the following advantages:
a) Good for investors seeking income through a dividend payout.
b) It helps in taking some money ‘out’ from mutual funds for investors who consider their money as ‘stuck’ in the investment.
IDCW may not offer value to all investors. Some limitations of IDCW schemes are:
a) IDCW plans do not help in creating a big corpus as there will be no accumulation or compounding of capital.
b) Dividends declared may be too small to make any difference to investors or may not be declared at all during a bad year.
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