Growth option

Most mutual fund plans come in two options, Growth and IDCW. They hold the same portfolio. The difference is what happens to the gains.

In the Growth option, nothing is paid out. Interest, dividends from the shares the fund owns and price gains all stay in the fund and show up in the NAV. The number of units you hold stays the same, and their value rises or falls with the NAV.

This has two effects:

• Compounding. Gains stay invested and earn further returns.
• Tax timing. Tax is due only when you redeem, on the capital gain, at the rates for short-term or long-term gains. In the IDCW option, every payout is taxed as income in the year it is paid.

For regular money from a Growth option, a systematic withdrawal plan redeems a fixed amount at set intervals.

The NAV of a Growth option is usually higher than that of the IDCW option of the same plan, because nothing has been paid out of it. Published fund returns are usually the Growth option's.