{"id":18947,"date":"2022-11-30T09:53:12","date_gmt":"2022-11-30T04:23:12","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=18947"},"modified":"2022-12-08T18:35:27","modified_gmt":"2022-12-08T13:05:27","slug":"growth-vs-idcw-mutual-funds-which-is-better-plan","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/","title":{"rendered":"Growth Vs IDCW Mutual Funds \u2013 Which is better Plan?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_40 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" area-label=\"ez-toc-toggle-icon-1\"><label for=\"item-69d9124010227\" aria-label=\"Table of Content\"><span style=\"display: flex;align-items: center;width: 35px;height: 30px;justify-content: center;direction:ltr;\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/label><input  type=\"checkbox\" id=\"item-69d9124010227\"><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#What_Is_An_IDCW_Mutual_Fund\" title=\"What Is An IDCW Mutual Fund?\">What Is An IDCW Mutual Fund?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Important_Points_For_The_IDCW_Dividend_Mutual_Fund\" title=\"Important Points For The IDCW (Dividend) Mutual Fund\">Important Points For The IDCW (Dividend) Mutual Fund<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#What_Is_A_Growth_Mutual_Fund\" title=\"What Is A Growth Mutual Fund?\">What Is A Growth Mutual Fund?<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Important_Points_For_A_Growth_Mutual_Fund\" title=\"Important Points For A Growth Mutual Fund\">Important Points For A Growth Mutual Fund<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Growth_Vs_IDCW_Mutual_Funds\" title=\"Growth Vs IDCW Mutual Funds\">Growth Vs IDCW Mutual Funds<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Which_Is_Better\" title=\"Which Is Better?\">Which Is Better?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#IDCW_and_Growth_Plan_Tax_Implications\" title=\"IDCW and Growth Plan Tax Implications\">IDCW and Growth Plan Tax Implications<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Taxation_Under_IDCW_Plan\" title=\"Taxation Under IDCW Plan\">Taxation Under IDCW Plan<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Taxation_Under_The_Growth_Plan\" title=\"Taxation Under The Growth Plan\">Taxation Under The Growth Plan<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Which_Is_Better_IDCW_Or_Growth\" title=\"Which Is Better, IDCW Or Growth?\">Which Is Better, IDCW Or Growth?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#What_Is_The_Distinction_Between_The_Growth_And_Dividend_Reinvestment_Options\" title=\"What Is The Distinction Between The Growth And Dividend Reinvestment Options?\">What Is The Distinction Between The Growth And Dividend Reinvestment Options?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#What_Factors_Should_Investors_Examine_When_Transitioning_From_A_Dividend_Plan_To_Growth_Plan\" title=\"What Factors Should Investors Examine When Transitioning From A Dividend Plan To Growth Plan?\">What Factors Should Investors Examine When Transitioning From A Dividend Plan To Growth Plan?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Why_Did_SEBI_Changed_Dividend_To_IDCW\" title=\"Why Did SEBI Changed Dividend To IDCW?\">Why Did SEBI Changed Dividend To IDCW?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Is_There_A_Difference_Between_Dividends_Declared_By_Mutual_Funds_And_Dividends_Announced_By_Companies\" title=\"Is There A Difference Between Dividends Declared By Mutual Funds And Dividends Announced By Companies?\">Is There A Difference Between Dividends Declared By Mutual Funds And Dividends Announced By Companies?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/#Interested_in_how_we_think_about_the_markets\" title=\"Interested in how we think about the markets?\">Interested in how we think about the markets?<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p><span style=\"font-weight: 400;\">When you invest in a Mutual Fund plan, you are always given two alternatives. One, you can allow the scheme&#8217;s returns to be reinvested. Two, you can choose to get your investment returns on a regular basis. The first is known as the Growth Option of a Mutual Fund scheme, while the second is known as the &#8216;Income Distribution and Capital Withdrawal&#8217; plans, or IDCW Mutual Fund (Earlier known as Dividend Plans).<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">As a result, investors that want a consistent income from their mutual funds typically pick the IDCW Plan. The Growth Plan, on the other hand, is chosen by investors who wish to profit from long-term wealth appreciation, notably through <a href=\"https:\/\/kuvera.in\/stocks\/listing\/all\">stock investment<\/a>, because all fund returns are reinvested.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/kuvera.in\/fixed-deposit\/all\"><img loading=\"lazy\" class=\"aligncenter wp-image-18627 size-large\" src=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/11\/FD-Updated-banner-01-1024x427.jpg\" alt=\"fixed-deposit-interest-rates\" width=\"640\" height=\"267\" srcset=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/11\/FD-Updated-banner-01-1024x427.jpg 1024w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/11\/FD-Updated-banner-01-300x125.jpg 300w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/11\/FD-Updated-banner-01-768x320.jpg 768w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/11\/FD-Updated-banner-01-150x63.jpg 150w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/11\/FD-Updated-banner-01.jpg 1250w\" sizes=\"(max-width: 640px) 100vw, 640px\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Aside from these two schemes, there is also one named &#8216;Reinvestment of IDCW&#8217; (formerly known as the Dividend Reinvestment Plan). This option is not offered in all mutual fund schemes, and only a handful do so. Returns or dividends are announced by a scheme but not paid out to you in this Reinvestment of IDCW plan. Instead, after dividend declaration, the profits are reinvested at the fund&#8217;s NAV.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">On the surface, the IDCW Reinvestment Plan appears to be identical to the Growth Plan, however, there are significant distinctions in how they operate and are taxed. In this article, we will go through all of the distinctions between the two solutions and determine which one is superior.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"What_Is_An_IDCW_Mutual_Fund\"><\/span>What Is An IDCW Mutual Fund?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">IDCW Mutual Fund invests in companies that have the ability to pay dividends to their shareholders on a regular basis, such as quarterly or yearly. The IDCW (Income Distribution Cum Capital Withdrawal) fund&#8217;s managers strive to invest in dividend-paying firms with a track record of dividend payments. Firms, on the other hand, pay dividends to their shareholders when they make a profit, and these companies are often large cap\/blue chip and well-established in the market.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Assume you invested Rs 1,00,000 into a mutual fund scheme with a NAV of Rs 10 per unit. As a result, you will earn 10,000 units.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Assume the mutual fund&#8217;s NAV increased to Rs. 16 per unit after a year, and the plan declared a Rs. 2 per unit payout. As a result, your dividends will be Rs. 20,000 (Rs. 10,000*2). And the overall value of the Dividend Reinvestment Plan or IDCW Reinvestment Plan is reduced by the amount of dividends that have been withdrawn. As a result, the <a href=\"https:\/\/kuvera.in\/blog\/nav-in-mutual-funds\/\">NAV of the scheme<\/a> would fall by Rs. 2 to Rs. 14 from Rs. 16.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">This Rs. 20,000 return you got will now be reinvested. The new NAV is Rs 14 per unit, which implies you will receive 1,428.57 units (10,000 \/ 14). As a result, your total number of units in that scheme will rise to 11,428.57 (10,000 + 1,428.57). And the total investment value will be Rs. 1,60,000 (Rs 14* 11,428.57 units).<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Important_Points_For_The_IDCW_Dividend_Mutual_Fund\"><\/span>Important Points For The IDCW (Dividend) Mutual Fund<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">According to SEBI rules, the dividend is paid from the scheme&#8217;s earnings.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The frequency, timing, and amount of dividends are NOT FIXED. As a result, if you want consistent income, dividends may not be a practical choice for you; instead, you can use the SWP option in mutual funds.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The dividend paid to the investor is deducted from the mutual fund scheme&#8217;s NAV (unit price). As a result, the NAV of the MF scheme decreases following dividend payment, but the number of units grows in the case of the dividend reinvestment option.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The dividend paid to the investor is taxed at the time of payment. Previously, the tax burden was on the company, but now it is on the investors ( as per the investor tax slab rate).<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"What_Is_A_Growth_Mutual_Fund\"><\/span>What Is A Growth Mutual Fund?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Growth mutual funds invest in firms with the potential for rapid growth and large profits. The fund&#8217;s primary goal is to increase the value of investors&#8217; assets. However, investing in growth funds might be dangerous because these firms are vulnerable to market volatility. Instead of paying out dividends, growth firms reinvest their profits back into the business. As a result, you gain profits on profits, which allows you to reap the benefits of compounding. It is recommended that you invest in a growth mutual fund for 3 to 7 years to enjoy the most rewards. Unless you want consistent cash flow, growth mutual funds are the best alternative.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The fund&#8217;s NAV (Net asset value) rises when the fund&#8217;s value rises, resulting in an increase in the fund&#8217;s portfolio valuation. Capital gains from mutual funds are taxed at different rates. This tax will be paid by investors when they redeem their fund units. However, investors are only required to pay taxes on their earnings.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Important_Points_For_A_Growth_Mutual_Fund\"><\/span>Important Points For A Growth Mutual Fund<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Due to the fact that investors receive a return on their investment in IDCW options, the Growth fund&#8217;s NAV will always be higher than dividend mutual funds.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The portfolio (where the money in the MF scheme is invested) is the same for growth and dividend MF.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A growth fund provides a larger overall return on investment ( compounding effect).<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">From an investing standpoint, the growth and dividend reinvestment options are identical; however, dividend taxation differs.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"Growth_Vs_IDCW_Mutual_Funds\"><\/span>Growth Vs IDCW Mutual Funds<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<table style=\"width: 100%;\" border=\"1.5\">\n<tbody>\n<tr>\n<td><b>Difference<\/b><\/td>\n<td><b>Growth Plan<\/b><\/td>\n<td><b>IDCW Plan<\/b><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Purpose to invest<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Money Appreciation<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Income from Money<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">NAV of Fund<\/span><\/td>\n<td><span style=\"font-weight: 400;\">The NAV is always greater than the dividend option.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">NAV will fall after dividend payment. As a result, NAV decreases after profit payout.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Profit of the scheme<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Keeping exclusively with the fund results in a growth in NAV and consequently profit.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Profit is provided to the investor on a regular basis.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Taxation<\/span><\/td>\n<td><span style=\"font-weight: 400;\">There is a short-term or long-term tax. This tax is determined by when you withdraw your money.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Taxed as per <a href=\"https:\/\/kuvera.in\/blog\/an-overview-of-the-current-income-tax-slab-rates-in-india\/\">income tax slab rate<\/a> of investor<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Who should invest<\/span><\/td>\n<td><span style=\"font-weight: 400;\">If you want your money to appreciate in value<\/span><\/td>\n<td><span style=\"font-weight: 400;\">If you require revenue from your mutual fund investment<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Which is better<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Preferable alternative for money accumulation\/growth.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">For income dividend option is better<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Taxation point of view<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Growth funds are superior in terms of taxation since they are less taxed.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">In terms of taxation, dividend funds are more taxed than growth funds.<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"Which_Is_Better\"><\/span>Which Is Better?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">The decision between IDCW and growth plans is influenced by the preferences and demands of investors. The only variation between the two alternatives is how the gains are dispersed or reinvested, even though the underlying portfolio stays the same.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The IDCW plan is appropriate for individuals seeking regular income from their assets since it provides some liquidity. The money they invested will be returned to them on a regular basis. Furthermore, dividend income is taxed at the investor&#8217;s marginal tax rate. However, investors lose the benefit of compounding under this strategy since a portion of the investment value is not included in future returns.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The growth plan is appropriate for investors who want to expand their money over time. This planprovides the benefit of compounding since gains are reinvested, multiplying and creating wealth. Furthermore, capital gains are taxed based on the kind of fund and the holding term. As a result, while choosing an option, investors must consider the tax consequences as well as the investing aim.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"IDCW_and_Growth_Plan_Tax_Implications\"><\/span>IDCW and Growth Plan Tax Implications<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4 style=\"color: black; font-size: 17px;\"><span class=\"ez-toc-section\" id=\"Taxation_Under_IDCW_Plan\"><\/span>Taxation Under IDCW Plan<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Dividends received from mutual funds are taxable in the hands of investors beginning April 1, 2020. Dividend income is classified as income from other sources, and investors pay tax based on their tax slab rate.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">As a result, if you are in the 30% tax band, you will pay 30% tax on dividends announced under the IDCW Reinvestment Plan for the fiscal year. As a result, your returns from mutual funds will be reduced even further.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Furthermore, a 10% TDS is levied on dividends paid by Mutual Fund schemes if the payout amount exceeds Rs. 5,000. This implies that in the preceding example, the amount reinvested will be less due to the TDS on mutual fund income. As a result, the eventual value of investments will be reduced.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Only when the dividend announced is less than Rs. 5,000 and your total taxable income is less than Rs. 5 lakh per year will your IDCW Reinvestment Plan returns be the same as the Growth Plan. There will be no TDS and you would not have to pay any tax on your dividend in such instance.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4 style=\"color: black; font-size: 17px;\"><span class=\"ez-toc-section\" id=\"Taxation_Under_The_Growth_Plan\"><\/span>Taxation Under The Growth Plan<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This plan&#8217;s taxation occurs when the investor redeems the fund units. It also depends on the sort of fund, such as an equity or a debt fund.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\"><a href=\"https:\/\/kuvera.in\/blog\/short-term-capital-gains-tax-on-listed-shares\/\">Short-term capital gains<\/a> in equity funds are taxed at 15% if held for less than a year. Long-term capital gains are free from tax up to INR 1 lakh, after which they are taxed at 10% if held for more than a year.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Short-term capital gains in debt funds are taxed at the investor&#8217;s income tax bracket rate if held for less than three years. Long-term capital gains are taxed at 20%, with an indexation advantage if held for longer than three years.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><b>Conclusion<\/b><\/p>\n<p><span style=\"font-weight: 400;\">IDCW and growth plans are both excellent investment choices. If you want to increase your wealth over time, investing in a growth plan can do the job. And if you want to earn a steady income or passive income, an IDCW plan is appropriate for you. Furthermore, you should select a mutual fund scheme depending on your needs, risk tolerance, and financial objectives. In addition, before deciding between IDCW and growth mutual funds, you should grasp the fundamentals of the stock market, the many <a href=\"https:\/\/kuvera.in\/blog\/types-of-mutual-funds\/\">types of mutual fund schemes<\/a>, IDCW, and growth differences in order to make an educated selection.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">This is not an investment recommendation. The blog is just for informational purposes. Investments in the securities market are subject to market risks; before investing, thoroughly read all relevant documentation. Past performance does not predict future results. Before selecting a fund or constructing a portfolio that meets your needs, please evaluate your unique investing criteria, risk tolerance, aim, time frame, risk and reward balance, and the cost of the investment. Any investment portfolio&#8217;s performance and returns cannot be anticipated or guaranteed.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><b>FAQs<\/b><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4 style=\"color: black; font-size: 17px;\"><span class=\"ez-toc-section\" id=\"Which_Is_Better_IDCW_Or_Growth\"><\/span>Which Is Better, IDCW Or Growth?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">IDCW and growth mutual funds both provide inflation-beating returns and can assist you in meeting your financial objectives. The main difference is that IDCW plans deliver earned income to investors on a regular basis, whereas growth mutual funds reinvest their earnings.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4 style=\"color: black; font-size: 17px;\"><span class=\"ez-toc-section\" id=\"What_Is_The_Distinction_Between_The_Growth_And_Dividend_Reinvestment_Options\"><\/span>What Is The Distinction Between The Growth And Dividend Reinvestment Options?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The dividend is reinvested back into the fund via growth funds. As a result, it provides long-term compounding advantages. Dividend reinvestment options, on the other hand, employ the received dividend to purchase further units of the fund on the investor&#8217;s behalf. As a result, the number of units grows.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4 style=\"color: black; font-size: 17px;\"><span class=\"ez-toc-section\" id=\"What_Factors_Should_Investors_Examine_When_Transitioning_From_A_Dividend_Plan_To_Growth_Plan\"><\/span>What Factors Should Investors Examine When Transitioning From A Dividend Plan To Growth Plan?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Switching your mutual fund investments from one option to another within the same scheme is termed a sale (redemption). As a result, depending on how long you invested, the switch will incur an exit burden and capital gains tax.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The two schemes&#8217; options have different NAVs and work in distinct ways.<\/span><\/p>\n<ol>\n<li><span style=\"font-weight: 400;\">The growth option reinvests fund gains, allowing you to benefit from the power of compounding and is better suited for long-term wealth accumulation.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The dividend option distributes the fund&#8217;s earnings to its investors. This option is only appropriate for people who want to earn a consistent income from their Mutual Fund investments.<\/span><\/li>\n<\/ol>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4 style=\"color: black; font-size: 17px;\"><span class=\"ez-toc-section\" id=\"Why_Did_SEBI_Changed_Dividend_To_IDCW\"><\/span>Why Did SEBI Changed Dividend To IDCW?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Income Distribution cum Capital Withdrawal\u00a0 or IDCW, refers to a mutual fund scheme&#8217;s distribution of income, which may comprise both dividends paid by stocks and capital gains achieved by selling underlying equities from the scheme portfolio. However, SEBI wants to underline that this income is derived solely from the investor&#8217;s investment value. In other terms, it is a capital withdrawal. According to SEBI, the term IDCW is a more appropriate definition of mutual fund dividends, and investors should have no misconceptions regarding mutual fund payouts.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4 style=\"color: black; font-size: 17px;\"><span class=\"ez-toc-section\" id=\"Is_There_A_Difference_Between_Dividends_Declared_By_Mutual_Funds_And_Dividends_Announced_By_Companies\"><\/span>Is There A Difference Between Dividends Declared By Mutual Funds And Dividends Announced By Companies?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Even while dividends paid by mutual fund schemes may appear or sound similar to dividends declared by corporations, there are significant distinctions between the two :<\/span><\/p>\n<p>&nbsp;<\/p>\n<ol>\n<li><span style=\"font-weight: 400;\">Dividends are paid by corporations from their profit after tax (PAT): \u00a0 Generally, companies distribute dividends after preserving a portion of their profits in reserves and surplus accounts for future growth. The company&#8217;s management chooses how much of the earnings should be distributed to shareholders as dividends and how much should go to the reserve and surplus account.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Mutual fund plans can only pay dividends on the scheme&#8217;s accumulated earnings. The dividend (IDCW) payout rate per unit is determined by the AMC. However, whether the scheme pays dividends or not, the cumulative earnings of the scheme belong to the investors and are represented in the scheme&#8217;s NAV (Net Asset Value). A scheme&#8217;s Net Asset Value (NAV) will always decrease when a dividend is paid out. After the dividend is paid, the NAV will decline accordingly and be readjusted.<\/span><\/li>\n<\/ol>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Interested_in_how_we_think_about_the_markets\"><\/span>Interested in how we think about the markets?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<p>Read more:\u00a0<a href=\"https:\/\/kuvera.in\/blog\/category\/zen-and-the-art-of-investing\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Zen And The Art Of Investing<\/strong><\/a><\/p>\n<p>Check out all our \u201cInvestor Education Originals\u201d videos on Youtube and get smart about investing<\/p>\n<style>.embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; }<\/style>\n<div class=\"embed-container\"><iframe src=\"https:\/\/www.youtube.com\/embed\/kLVKMlFMgAQ\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/div>\n<div><\/div>\n<div>Start investing through a platform that brings goal planning and investing to your fingertips. Visit\u00a0<a href=\"http:\/\/app.kuvera.in\/\"><strong>Kuvera.in<\/strong><\/a>\u00a0to discover\u00a0<a href=\"https:\/\/kuvera.in\/blog\/direct-plans-better\/\"><strong>Direct Plans<\/strong><\/a>\u00a0and\u00a0<strong><a href=\"https:\/\/app.kuvera.in\/explore\/fixed-deposit\/c\/all\">Fixed Deposits<\/a><\/strong>\u00a0and\u00a0<a href=\"https:\/\/kuvera.in\/user\/login\"><strong>start investing today.<\/strong><\/a><br \/>\n#MutualFundSahiHai #KuveraSabs<\/div>\n","protected":false},"excerpt":{"rendered":"<p>When you invest in a Mutual Fund plan, you are always given two alternatives. One, you can allow the scheme&#8217;s returns to be reinvested. Two, you can choose to get your investment returns on a regular basis. The first is known as the Growth Option of a Mutual Fund scheme, while the second is known [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/growth-vs-idcw-mutual-funds-which-is-better-plan\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":11,"featured_media":18955,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[99,822],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Growth Vs IDCW Mutual Fund - Which is a Better Plan?<\/title>\n<meta name=\"description\" content=\"Choosing betwee the growth or idcw mutual fund depends on the investors need and choice. 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