IDCW full form in mutual fund?
IDCW full form in mutual fund – If you’re interested in mutual funds, you may have come across the term IDCW. IDCW stands for “Income Distribution cum Capital Withdrawal,” which is a common term used in the mutual fund industry.
When you invest in a mutual fund, you earn returns in the form of dividends, interest income, and capital gains. These returns are distributed to investors in two ways – either through dividend payments or by increasing the fund’s net asset value (NAV). IDCW is a type of dividend payment where investors receive both income distributions and capital withdrawals simultaneously.
How IDCW works?
To understand how IDCW works, let’s take an example. Suppose you have invested Rs. 1,00,000 in a mutual fund, and the fund declares an IDCW of Rs. 5 per unit. If you have 1,000 units of the fund, you will receive a payment of Rs. 5,000 (1,000 units x Rs. 5 per unit). This payment includes both the income distribution and a portion of your original investment.
Advantages
The advantage of IDCW is that investors receive regular cash flow without selling their units. This means that investors can benefit from the fund’s returns while still maintaining their investment in the fund. Additionally, IDCW allows investors to receive a portion of their investment back without having to sell their units, making it a convenient option for those looking for regular income.
Disadvantages
However, it’s important to note that IDCW may not be suitable for all investors. Since the capital withdrawal component reduces the fund’s NAV, investors who opt for IDCW may experience a lower return on their investment compared to those who opt for the growth option. Additionally, IDCW may not be tax-efficient for investors in higher tax brackets.
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Conclusion
IDCW is a popular option for investors looking for regular cash flow from their mutual fund investments. While it offers convenience and regular income, investors should carefully evaluate whether IDCW aligns with their investment goals and risk tolerance. As with any investment, it’s important to do your research and consult with a financial advisor before making any investment decisions.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
