IDCW in mutual funds stands for "Income Distribution cum Capital Withdrawal." It refers to the distribution of income of a mutual fund scheme, which may include both dividends paid by stocks and capital gains made by selling underlying stocks from the scheme portfolio. This term was introduced by the Securities and Exchange Board of India (SEBI) in April 2021 to replace the term "Dividend Option" in mutual funds. The change in terminology was aimed at clarifying misconceptions about mutual fund dividends and emphasizing that the income distributed through IDCW comes out of the investors investment value, amounting to a withdrawal of capital.
Investors can choose to invest in mutual fund schemes under the IDCW option to receive returns at regular intervals from their investments. However, its important to note that the income received through IDCW is a portion of the investors capital and may not necessarily be over and above the capital appreciation. The NAV (Net Asset Value) of IDCW mutual funds may witness little change when dividends are distributed, as the surplus cash is used to distribute dividends rather than increasing the NAV.
In summary, IDCW in mutual funds represents a method for investors to receive income from their investments at regular intervals, which includes both dividends and capital gains, while also emphasizing that this income is a withdrawal of capital from the investors investment value.
