Mutual funds give you an option to choose how returns get distributed. Understand which type of mutual fund makes sense.
Updated on: 18-Oct-2022 •Ravi Banagere
You have two options if you are looking to invest in a mutual fund.
Option 1: You want a portion of your mutual fund gains to be handed over to you from time to time
In this case, you should opt for Income Distribution cum Capital Withdrawal (IDCW) plans.
However, they aren't very popular due to the following reasons:
Option 2: You want your investment gains or dividends to be reinvested further
Before that, let's explain why people even choose to reinvest the money they earn from their mutual fund investment? In one line: to allow their money to grow faster.
This is why growth plans are very popular.
Since these plans reinvest all the proceeds (such as dividends received from stocks and realised gains) back into the fund, its NAV keeps growing. Since they give your investments the best chance to grow at a faster pace, growth plans are considered better than IDCW plans.
But what if you are looking for a regular income?
On paper, IDCW plan looks the better choice as these funds hand out your gains from time to time.
However, growth plans are actually the smarter option. Here's why:
Therefore, we suggest you keep it simple and always opt for a growth plan. It is more tax-efficient and gives you more control over when and how much you want to redeem.