What is the difference between growth and IDCW in mutual fund?

In the context of mutual funds, “growth” and “IDCW” (Income Distribution Cumulative Warrant) refer to different aspects of fund returns. Let’s understand each term:

Growth: Growth in a mutual fund refers to the increase in the value of the fund’s investment holdings over time. When you invest in a growth option of a mutual fund, the primary objective is capital appreciation. The fund manager aims to invest in stocks or other securities with high growth potential. The returns earned by the fund are reinvested back into the fund, allowing the net asset value (NAV) of the fund to increase over time. Investors typically benefit from capital gains when they sell their units at a higher price than what they initially invested.

IDCW (Income Distribution Cumulative Warrant): IDCW is a term specific to some mutual funds, particularly those that follow a dividend distribution strategy. Dividend distribution funds aim to provide regular income to investors by distributing a portion of the fund’s earnings as dividends. IDCW indicates that the dividends declared by the mutual fund are reinvested in the fund instead of being paid out to investors. These reinvested dividends are used to purchase additional units of the mutual fund on behalf of the investors, thereby increasing their investment value.

The main difference between growth and IDCW lies in how the returns are handled. In growth funds, the returns are reinvested within the fund to generate capital appreciation, whereas IDCW funds distribute dividends, but those dividends are reinvested in the fund to buy more units on behalf of investors.

It’s important to note that not all mutual funds offer IDCW as an option. It is specific to dividend distribution funds, where investors can choose between dividend payout (receiving dividends in cash) or IDCW (reinvestment of dividends to purchase additional units). Growth funds, on the other hand, focus primarily on capital appreciation and do not involve regular dividend distributions.

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