Growth vs IDCW (Dividend) Option in Mutual Fund
To Open FREE Demat Account in Angel One:- https://tinyurl.com/2ypar8gt
Growth vs IDCW (Dividend) Option in Mutual Fund
#AngelOneMF #AngelOne
Namaskar Dosto,
iss video me maine aapko IDCW or Growth option Mutual Funds ke bare me bataya hai or bataya hai ki in dono me kya difference hai. Muhje ummeed hai ki aapko ye video pasand aayegi. Jai hind vande mataram.
Generally, when individuals venture out to invest in mutual funds, they face two primary options: growth funds and dividend funds.
Curiously, while both investment options have the same underlying portfolio, they trade at different net asset values (NAVs) and even face different tax implications. Why is this the case, and what are the other parameters on which dividend funds differ from growth funds? Let’s find out.
What is IDCW (Dividend) Mutual Fund?
Before we delve into dividend funds, let’s first understand what dividend in mutual funds is. A dividend in a mutual fund scheme refers to NAV accretion. In other words, the fund’s manager decides what part of the profit will be distributed to the unit holders as a dividend. Unlike stock dividends, dividends in mutual funds are not an indication of the fund’s profitability. This means a higher dividend payout doesn’t translate to higher scheme profitability.
Thus, a dividend mutual fund is one that distributes dividends to its unitholders at some interval—monthly, quarterly, or annually. However, these dividends are not assured, and can only be paid out of accumulated profits.
To avoid any confusion, SEBI, in 2021, has mandated all fund houses to change the names of their dividend option schemes to ‘Income Distribution cum Capital Withdrawal’ (IDCW) plans. These schemes include both the dividends paid by stocks as well as the capital gains received on the sale of underlying stocks as distributional profits.
When dividend funds distribute dividends, their NAV values are reduced. For instance, if a fund’s NAV is trading at Rs. 15, and a dividend of Rs. 4 is distributed, then the NAV value will be reduced to Rs. 11 (Rs. 15 – Rs. 4).
However, some schemes also offer the option to reinvest these dividends. In the dividend-reinvestment option, the NAV will not trade ex-dividend, instead, the units held will increase. Another option is dividend-sweep, which invests these dividends in another mutual fund’s scheme of the same AMC.
What is Growth Mutual Fund?
A growth mutual fund reinvests the profits earned, rather than distributing them to its unitholders. As a result, the NAV for growth funds is higher than the NAV for dividend funds. Additionally, these auto-compounder schemes create higher wealth for their investors in the long run.
By reinvesting all the profits, a growth-type mutual fund manager can improve the scheme’s NAV. Investors can, then, make a profit by selling their units or at the time of redemption. To illustrate, consider a scenario where you buy 100 units at Rs. 40, and their NAV rises to Rs. 50 after a year due to reinvestment. On selling these units, you can make a profit of Rs. 1,000.
A growth mutual fund is more suitable for investors who are high-risk takers and do not require regular income. Young investors with long horizons, or couples with young children planning for college expenses, should consider investing in growth funds. These funds are also optimum for those falling under lower tax brackets of under 10%, as they wouldn’t be levied any dividend distribution taxes.
● Disclaimer: "Investments in securities market are subject to market risks, read all the related documents carefully before investing"
● प्रतिभूति बाजार में निवेश बाजार जोखिम के अधीन है, निवेश करने से पहले सभी संबंधित दस्तावेजों को ध्यान से पढ़ें
● Disclaimer: "This video is exclusively for educational purposes"
● Disclaimer: "Mutual Fund investments are subject to market risks, read all scheme related documents carefully"
For Full Disclaimer Visit - https://bit.ly/3N5sB2w
Note: - Full Credit to Owners. All Images, Videos, Picture, Music show in the video belongs to the respected owners.
Disclaimer- Some contents are used for educational purpose under fair use. Copyright Disclaimer Under Section 107 of the Copyright Act 1976, allowance is made for "fair use" for purposes such as criticism, comment, news reporting, teaching, scholarship, and research. Fair use is a use permitted by copyright statute that might otherwise be infringing. Non-profit, educational or personal use tips the balance in favor of fair use. All credit for copyrighted material used in video goes to respected owner.
The information provided in this video is solely for education purposes.
This is not an investment advise.
We are NOT REGISTERED WITH SEBI as investment adviser or research analyst.
Music Title:- Sweet as Honey (Free Music)
Contributing artists:- Topher Mohr and Alex Elena
Album:- YouTube Audio Library
Voice:- Umesh C Saini