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Market Intelligence › Basic Terminologies
How the dividend option really works — it is not extra money
Published by The Retail Trader · JUL 29, 2026 · Mutual Funds & AMC
When choosing a fund, one option is growth and the other is IDCW, which used to be called the dividend option. Many people treat IDCW as extra income. It is nothing extra.
The payout comes out of the value of your own investment. By the amount of the payout, the NAV falls. Cash comes into your hand, and the value of the portfolio drops by exactly that much.
In the growth option that amount stays inside the fund, and further return is earned on it.
The decision rests on your need for income and on tax, not on return:
• In growth, compounding keeps running on the full amount.
• An IDCW payout becomes taxable once it reaches your hand, and its timing is not in your control.
• If you want regular income, an SWP gives more control — you choose both the amount and the date.
• IDCW is never guaranteed; it depends on the fund's distributable surplus.
If you do not need that money right now, there is no benefit in taking it out. Every rupee that leaves the portfolio is a rupee whose compounding you have handed to someone else.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed by the exchanges, SEBI and RBI from time to time, so verify every number yourself with your broker or the official source.