Income Distribution cum Capital Withdrawal (IDCW)

Income Distribution cum Capital Withdrawal (IDCW) is the SEBI-mandated new name (effective April 2021) for what was previously called the 'Dividend Plan' or 'Dividend Option' in mutual funds. The renaming was introduced to more accurately reflect the nature of the payout — which is not necessarily paid from income or profit, but may include a return of the investor's own invested capital (capital withdrawal). When a mutual fund declares an IDCW, the payout amount is deducted from the fund's NAV on the record date. Unlike corporate dividends, IDCW payouts from mutual funds reduce the NAV by the exact amount distributed. IDCW from equity-oriented mutual funds is taxed as dividend income in the hands of investors at their applicable income tax slab rate — making it less tax-efficient than the Growth option for investors in higher tax brackets. The IDCW plan remains suitable for investors who need regular cash flows from their mutual fund investments.