Many investors are already aware of the new term ‘IDCW’ in mutual funds through articles in various financial websites or intimations from AMCs. But this is for those who still do not know about the term and about the reason why this change was made.
‘IDCW’ is nothing new but the ‘Dividend option’ in mutual fund. SEBI Changed the existing term’ Dividend option’ to ‘IDCW’ in April 2021. The expansion is ‘Income Distribution cum Capital Withdrawal’.
Why the change in term?
‘Income Distribution cum Capital Withdrawal’ – the name itself suggest the reason behind SEBI changing the ‘Dividend option’ to ‘IDCW’ and it truly emphasize on the fact that the income that the AMCs distributed to the investors in the so-called dividend option is nothing but a part of their own current investment value and should not be confused with the dividend that is paid to the shareholders by companies in share market.
When a dividend (now IDCW) is paid in a mutual fund scheme the NAV of the scheme goes down. That means you as an investor is not getting something extra, but only a part of your own capital appreciation back. So, SEBI changed the name appropriately so that the investors are more aware while choosing one from the ‘IDCW’ or the ‘growth option’ while investing in a fund.
In fact you lose out on the compounding effect that is the essence of investing in mutual fund, if you invest in a fund with IDCW option.
Consult your advisor if needed, before making any investment decision.