Choosing Between Growth vs. IDCW: A Guide for Smart Investors

Have you ever noticed that there are two options for the mutual funds you invest in? Often, people miss this, but if you look into your mutual fund account and the schemes you have invested in, you can find that there are two options which you can choose – IDCW and Growth. So, what are these two options? How do they affect your mutual fund returns or cash flows? IDCW vs. Growth, and which one to pick out of these two might be something you are thinking about now, isn’t it? 

So, in this article, we will focus on the idcw and growth differences, which one investor should choose and why, and all other aspects of both IDCW and Growth options in mutual funds.  

What is IDCW in a mutual fund?

The IDCW full form stands for Income Distribution cum Capital Withdrawal, and the IDCW meaning is exactly what its name suggests. So, this option offers the investors periodic payments out of the profits made by the fund. These are distributed as dividends and depend on the performance of the fund. 

This option helps in generating a regular cash flow without redeeming the investments; however, that reduces the fund’s net asset value (NAV) and limits the potential long-term growth. 

Features of the IDCW Option 

• Provides regular payouts of the fund’s profit, thus creating a source of regular income. 
• The payouts are not guaranteed, which one must bear in mind as they depend on the performance of the fund. 
• Lower compounding effect as the earnings are withdrawn and distributed, and not reinvested. 
• Reduces the NAV of the fund as dividends are distributed out of the profits generated by the fund
• The income from this option is added to the “income from other sources” in your ITR and taxed as per your applicable tax slab

Who Should Choose the IDCW Option?

• Retirees who are looking for a regular source of income or any other individuals trying to build a regular source of income from investments
• It is also suitable for risk-averse investors, as this option offers lower risk exposure 
• People who are looking for short-term investments to preserve capital while earning some return on it 

What is a Growth Option in a Mutual Fund?

Now, as you are trying to understand between idcw vs growth, which is better, let’s understand the other side of the story. The Growth option is where all the profits made by the mutual fund are reinvested in the fund itself, which increases the value of the mutual fund units. This option helps in building long-term wealth with the compounding effect. This option does not offer any periodic payouts but helps in accumulating wealth over the years.   

Features of Growth Option 

• Mutual fund profits or earnings are reinvested in the scheme itself, which enhances the capital growth 
• No capital is withdrawn during the tenure of the mutual fund investment
• The fund’s performance depends on the markets, and in the long term, capital appreciation takes place 
• The compounding effect is high as the earnings are reinvested into the fund itself. This increases the wealth accumulation as well.
• NAV remains high as no profits are distributed out of the fund. 
• Tax is levied only when you redeem the fund units. 

Who Should Choose the Growth Option? 

• People who are looking for long-term capital appreciation 
• Investors with a high risk tolerance level 
• People who fall under the higher tax brackets, as this option offers tax efficiency in the long term
• People with long-term financial goals such as higher education, buying a house, or building a corpus for retirement. 

Learn the Key Differences Between ETFs and Mutual Funds

Difference Between Growth and IDCW In a Mutual Fund

Basis	Growth Option	IDCW Option
Returns	Due to reinvestment, returns are higher	As profits are distrusted, the returns are lower
Risk	Higher risk due to market volatility	Lower risk as regular payouts are offered
Liquidity	Lower liquidity, as you can get the funds only upon redemption	Higher liquidity as you get periodic cash inflows
Impact on NAV	NAV grows as profits are reinvested	NAV decreases after each payout
Tax Effect	Only taxed upon redemption.	Payouts are treated as other income and taxed as per the tax slab in which the investor falls.

How do both options work?

To understand IDCW vs. the growth option better, here is how both these options work. 

Suppose you have invested ₹10000 each into the IDCW and Growth option of a mutual fund scheme on 1 April 2025. The NAV at the time of investment was ₹100, so the number of units you got into your account is (₹10000/₹100) = 100 units of both the plans. 

Now, suppose as on 1^st October 2025, the NAV of both the plans increased to ₹110. 

Under the IDCW plan, they declare a dividend of ₹10 per unit, so you will receive ₹10*100 units = ₹1000 as payout from the IDCW plan. Once this payout is made, the NAV of the plan will reduce by ₹10 and will again be ₹100 per unit. 

On the other hand, since there is no payout under the Growth plan, and the earnings of the fund are reinvested, the NAV will remain at ₹110, which means your investment value will be now ₹11000 under the Growth plan, which under IDCW it will be ₹10000 as on 1^st October 2025. 

Now, since under the growth plan, the earnings are reinvested, due to the compounding effect, in the long run, the capital appreciation will be higher than the IDCW plan. 

Conclusion 

Both IDCW and Growth plans have their own share of pros and cons. While one offers stability and regular income benefits, the other helps in wealth accumulation. So, it is not about which one is better than which one; it is about which one is suitable for your investment goals. 

IDCW Vs. Growth Mutual Funds | FAQs

Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.