Your Questions Answered: I want to invest in mutual funds with periodic payouts. What factors should I consider?

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David Gonzales, Panaji, Goa

Investing in mutual funds offers a plethora of choices and the selection of the right option hinges on your financial goals and risk appetite. Among the critical decisions you'll face lies the choice between the growth option and the dividend option. When investing in mutual funds in India, most mutual fund schemes provide two choices when it comes to how you receive your returns: growth option and dividend option. 

Each option offers a different strategy for handling profits made by the fund, and the best choice for you will depend on your individualfinancial goals and circumstances. SEBI vide its circular number SEBI/HO/IMD/DF3/CIR/P/2020/194 has renamed the dividend option in mutual funds as Income Distribution Cum Withdrawal (IDCW) option. But what exactly sets these two apart? Let's delve into their key differences.

Growth option: This option reinvests all profits generated by the mutual fund scheme back into the scheme. These profits include both income received from investments and capital gains. This continuous reinvestment fuels the power of compounding, leading to potentially higher returns in the long run.

IDCW option: As the name suggests, IDCW schemes distribute a portion of the fund's profits to investors at regular intervals. There are three sub-options within the IDCW option, which are: 

Individuals looking for a regular income stream should ideally select an IDCW reinvestment plan. 

Growth option: The NAV (Net Asset Value) of a growth fund grows steadily over time due to the compounding effect of reinvested profits. This translates to a higher overall corpus value at the time of redemption.

IDCW option: With regular profit distributions, the NAV of an IDCW fund may experience