IDCW

IDCW is the name SEBI gave in April 2021 to what used to be called the dividend option. The new name makes clear that a payout can include part of your own capital.

When a fund declares an IDCW, its NAV falls by the amount paid. If the NAV is ₹25 and the fund pays ₹1 a unit, the NAV becomes ₹24, before the day's market moves. Your total is unchanged; part of it has moved to your bank account.

• Amount and timing are not fixed. The fund house decides when to pay and how much, and can skip payouts.
• Tax. Each payout is added to your income and taxed at your slab rate for that year. Tax may also be deducted at source above a yearly threshold.
• Two forms. IDCW payout sends the money to your bank. IDCW reinvestment uses it to buy more units of the same fund.

The Growth option of the same plan pays nothing out and is taxed only when you redeem. A systematic withdrawal plan is another way to draw regular money from a fund, at an amount and date you choose.