Growth v/s Income Distribution cum Capital Withdrawal (IDCW)
IDCW
SEBI mandates that dividends can be paid out only from profits earned by the respective mutual fund.
Dividend payout rates may vary with each payout cycle
Dividends paid on both equity and debt mutual funds are taxed as per the investor's income tax slab. In case the investor doesn't have any source of income other than mutual funds, a mandatory TDS is deducted at 10% from the total dividend income. However, no deduction takes place if the dividend distributed is Rs. 5000 or lower.
TDS is deducted at 10% from the total dividend income. However, no deduction takes place if the dividend distributed is Rs. 5000 or lower.
Growth Fund
In growth funds, profits earned are reinvested in the scheme, and no interim payout takes place. Here, you stand a chance to earn profits on profits.
Typically, the Net Asset Value or NAV of growth mutual funds is always higher than the IDCW option. Simply because of profits being reinvested into the scheme to earn compounded returns.
You pay tax on growth mutual funds only at the time of redemption. If you’ve invested in growth type equity mutual funds, short term capital gains (less than 12 months) are taxed at 15%. As for long term capital gains (more than 12 months) are taxed at 10%. However, any capital gains up to Rs. 1 lakh is tax-exempt.
As for growth type debt mutual funds, short term capital gains (less than 36 months) are taxed according to your income tax slab. At the same time, long term capital gains are taxed at 20%.