While investing in mutual funds, you will find four options of Mutual Fund, IDCW (Income Distribution cum Capital Withdrawal) is one of them. Investors choose IDCW for dividend as income. This option allows mutual fund investors to earn some extra money while staying invested in mutual funds.
The income from IDCW mutual funds is often mistaken as “extra income.” But reality is not like that. When dividend payout happens your fund value drops according to your dividend payout amount.
What is IDCW in Mutual Funds ?
IDCW (Income Distribution cum Capital Withdrawal) is a mutual fund option to choose dividend pay out time of selection of mutual fund to invest. If you select the IDCW option then you are eligible to get a dividend in your account when dividend is paid.
The amount of IDCW paid from your fund NAV. So when dividend payout happen,
There are 4 types of options available when you choose to buy a mutual fund. Direct, Direct IDCW, Regular, Regular IDCW.
Tax on IDCW in Mutual Funds ?
Every IDCW payout is fully taxable as It is taxed as per your income tax slab .Even if you fall in the 30% bracket, the entire payout gets taxed accordingly.
Plus, TDS may apply if the payout crosses limits. It has no short term or long term capital gain benefits.
Also Read :- SIP vs SWP : One Builds Wealth, Other Pays Your Bills in 2026
IDCW vs Growth Mutual Fund ?
IDCW mutual funds that pay dividends periodically but not fixed in many mutual funds. But Growth mutual funds reinvest dividends payout in your investment.
Here is tabular difference;-
| Feature | IDCW | Growth |
| Payout | Regular income | No payout |
| NAV | Falls after payout | Keeps growing |
| Tax | Tax on every payout | Tax only on selling |
| Compounding | Breaks | Continues |
| Best For | Income need | Wealth creation |
Also Read : Debt Funds in 2026: How Rising Yields Can Boost or Hurt Returns
Final Take
IDCW (Income Distribution cum Capital Withdrawal) is for income but you have to pay tax. If you need income, you can choose the IDCW option. However you want to create wealth through SIP then you must choose the Growth option.
Navnit Kumar (ARN-183463) is an AMFI-Registered MFD and financial expert with 8+ years of experience. Author of the Amazon bestsellers Anybody Can Trade and Anybody Can Trade Options , Navnit simplifies complex strategies like SWP & SIP to help investors achieve sustainable financial freedom.
