Growth or IDCW: which option suits you?

The choice between growth and IDCW changes when you receive money and how it is taxed. It does not change what the fund earns.

What is the difference between growth and IDCW?

In the growth option nothing is paid out. In the IDCW option the fund pays out money when it declares IDCW, and the NAV drops by that amount. Every plan of a fund comes with both options.

A few terms first. A unit is your share of a fund, and the NAV is the price of one unit. IDCW stands for Income Distribution cum Capital Withdrawal. The growth option pays nothing out and lets gains build up inside the NAV.

Both options of a scheme hold the same portfolio. They are still kept apart, and after the first payout they have separate NAVs.

Is IDCW the same as a dividend?

No. A dividend is cash a company pays its shareholders out of its profits. IDCW can include some of your own money coming back to you.

SEBI's rules say so openly. Offer documents must state that the amounts can be paid out of investors' capital, called the equalisation reserve. That is the part of the sale price that represents realised gains. Your fund house has to tell you this when you subscribe.

Payouts are also not fixed. IDCW is paid only subject to "availability of distributable surplus". One fund's scheme document describes that as surplus from realised profit, dividends and interest, net of losses, expenses and taxes. The fund decides the amount and when to pay it. For one scheme, the document adds that there is no assurance about the rate of IDCW or that it will be paid regularly. For monthly income from funds in general, see can you get monthly income from mutual funds.

What happens to the NAV when a fund pays IDCW?

The NAV falls by the amount paid out, so the value of your units drops by what you receive. SEBI requires the payout notice to say that the NAV of the scheme would fall to the extent of the payout.

Here is a made-up example. The NAV and the payout are hypothetical.

You are exactly where you started. The ₹6,000 came out of the fund's value; it was not added to it.

This is why you cannot set an IDCW NAV beside a growth NAV and read one as better. Payouts keep pulling the IDCW option's NAV down, while the growth NAV is never cut. This is why a like-for-like return comparison uses the growth option, whose NAV carries the whole return. How much weight any NAV deserves is a separate question, covered in how important NAV is when choosing a fund.

Why is IDCW not extra return?

Because the fund earns the same in both options. IDCW only moves part of your investment into your bank account.

SEBI chose the name Income Distribution cum Capital Withdrawal for this reason. A payout can include your own capital. Whenever a payout is made, your account statement must show a clear split. One part is income distribution (appreciation on NAV), the other capital distribution (the equalisation reserve).

There are two costs to taking money out this way. Money paid out stops growing inside the fund. And as the next sections show, it is taxed in the year you receive it.

A dividend yield fund does not change any of this. That kind of fund is defined by the shares it buys, not by paying IDCW. The dividend yield funds page covers it.

Payout, reinvestment or transfer: what are the IDCW choices?

SEBI allows three forms of the IDCW option: payout to your bank, reinvestment in more units, or transfer to another scheme.

Payout. The money is paid within 7 working days of a date the fund sets for each IDCW.

Reinvestment. The money buys new units on the reinvestment date, at the NAV after the payout. In the example above, ₹6,000 at ₹28.50 buys 210.53 units, before the duty described below. You then hold 4,210.53 units worth ₹1,20,000 at that NAV: the same total as before.

So reinvestment adds no return.

Some details on those new units:

• One fund's scheme document says a stamp duty applies to IDCW reinvestment. It is a duty levied on the transaction value, so the units allotted are reduced to that extent.
• SEBI's rules carry no exit load on units allotted on reinvestment. An exit load is a fee some funds charge if you sell within a set time.
• Each reinvestment buys units on that date, so for tax they are treated as a fresh purchase with their own date.

Reinvesting does not avoid tax. The IDCW is still your income for the year, taxed at your slab rate, the rate on your normal income. It also counts towards the ₹10,000 above which the fund deducts 10% TDS, tax deducted at source. That holds even though the money goes straight back into units.

Small payouts. Two scheme documents say an IDCW of ₹100 or less is reinvested compulsorily instead of being paid out.

Transfer. The IDCW goes into another scheme. SBI Mutual Fund's document sets a ₹250 minimum for this, and below it the amount is reinvested in the source scheme.

How is IDCW taxed, and how is growth taxed?

IDCW is added to your income and taxed at your slab rate in the year it is paid, while growth is taxed only when you sell, on the gain. The slab rate is the rate on your normal income, from 0% to 30%. A capital gain is the profit on units you sell.

The rules below are for a resident individual in tax year 2026-27, under the Income-tax Act, 2025.

Tax on IDCW

• IDCW falls under "Income from other sources" and is taxed at normal rates. From 1 April 2026, no interest expense can be deducted against it.
• TDS is tax deducted at source, before the money reaches you. A fund house deducts 10% on the whole IDCW amount once its IDCW to you in a tax year is more than ₹10,000. It does not deduct only on the excess. At ₹10,000 or less, there is no TDS.
• TDS is credited against your tax for the year. It does not change what is taxable, and it is refunded if it exceeds your final tax.
• Cess is an extra 4% charge on the tax (Health and Education Cess). A surcharge, an extra charge on the tax itself, starts only when total income passes ₹50 lakh.

Take the ₹6,000 payout from the example. At a 20% slab, tax is ₹1,200 plus ₹48 cess, so ₹1,248. At a 30% slab, it is ₹1,800 plus ₹72, so ₹1,872, if total income is not above ₹50 lakh, so no surcharge applies. There is no TDS here, because ₹6,000 is not more than ₹10,000. That holds only if no other IDCW from the same fund house that year takes the total above ₹10,000. Had you reinvested, the tax would be the same.

Tax on growth

Nothing is taxed while you hold. Tax arises when you sell units, and a fund's own trades inside the scheme create no tax for you. The rate depends on the holding period (how long you owned a unit, from purchase to sale) and the kind of fund:

• Equity-oriented fund (at least 65% in equity shares of domestic listed companies, on an annual average): units held 12 months or less are short-term and taxed at 20%. Held longer, they are long-term, taxed at 12.5% only on gains above ₹1,25,000 in the tax year.
• Specified Mutual Fund (more than 65% in debt and money market instruments): for units acquired on or after 1 April 2023, the gain is short-term whatever the holding period. It is taxed at your slab rate.
• Other funds, for example gold or silver funds: an unlisted unit held 24 months or less is short-term, taxed at slab rate. Held longer, the gain is taxed at 12.5%.

A resident's gain on units sold carries no TDS, because the rule excludes income of the nature of capital gain.

For lot-by-lot selling, see how SIP returns are taxed. For debt funds, see tax on debt mutual funds.

Which option suits which need?

Growth suits money you want to leave invested, while IDCW suits someone who wants payouts and accepts that they are not fixed and are taxed each year.

A few factors decide which fits:

• Cash now or later. IDCW sends money to you as it is declared. Growth leaves it in the NAV until you sell.
• Your slab rate. IDCW is taxed at it every year it is paid. Growth gains are taxed at the rates for the fund's type, and only when you sell.
• Certainty. You cannot choose the amount or the date of an IDCW. The fund can pay less, or nothing.
• Control. With growth, you pick when to sell and so when the tax falls.

If what you want is a regular sum that you set yourself, look at how a systematic withdrawal plan (SWP) works. Customers can set up an SWP on Koshex.

As a distributor, Koshex helps you choose a fund that suits your goal and timeline. The option comes after that choice, and you can read more about funds on the mutual funds page.

Moving from IDCW to growth in the same fund is done as a switch. Fund houses differ on exit load. SBI Mutual Fund's document treats it like selling units back to the fund, with the applicable load. The Axis Nifty 50 Index Fund document says no load is levied on switches between options. How switching works has the details.