Mutual fund 'dividend' is a misnomer. And tax-inefficient, too
PREMIUMThe IDCW option in mutual funds is different from dividend in stock
While investing in mutual funds, a question that comes up often is whether to invest in the "dividend" option or the "growth" option. While investors still equate the term dividend in stocks to the dividend received from mutual funds, the reality is quite different and the terminology can be misleading. From April 2021, the Securities and Exchange Board of India (Sebi) has changed the terminology from dividend to IDCW (income distribution cum withdrawal). This change, in fact, makes it clear what fund houses do—they do not declare dividend, they simply distribute income to investors by reducing investors’ capital (capital withdrawal).
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