Key idea
Within a fund, you choose whether gains stay invested and compound, or get paid out to you. For long-term wealth, the choice matters.
When you pick a fund, you also pick an option. The Growth option keeps all gains inside the fund, so they compound. The IDCW option (Income Distribution cum Capital Withdrawal, once called the "dividend" option) periodically pays some of the value out to you.
The two options
Growth
- Gains stay invested
- Value compounds over time
- Best for long-term wealth
- No payouts along the way
IDCW
- Periodic payouts to you
- Less compounding inside the fund
- For those wanting cash flow
- Payout is partly your own capital
The point people miss
An IDCW payout is not "extra" money the fund generates for you; it is partly your own invested capital being returned, which reduces the NAV accordingly. For someone building wealth over years, the Growth option almost always makes more sense, because uninterrupted compounding is the entire engine of long- term returns.
If you are investing to grow money for the long term, Growth lets compounding run unbroken. IDCW suits those who specifically need periodic cash flow. The right option depends on your goal.
Finished reading?
Marking this complete counts today, and your streak becomes day 1.