IDCW, and What It Means
Namaskar,
Now that the second COVID-19 wave in the country is slowly abating and the process of unlocking has been underway, I am sure everyone is breathing a cautious sigh of relief. Work, too, is slowly limping back to normal. And speaking of work and business, today I would like to focus on investing in Mutual Funds!
After reading a few financial articles over these last few days, and getting some queries from my clients, it occurred to me that there were some aspects about mutual funds investing needed clarifying.
The first point is about the IDCW (which I explain in detail below). From the time I started Anant Wealth, I have met clients from various backgrounds, all with a diverse set of goals and requirements. One type of clientele falls in the distribution bracket. This refers to the retirees or people who don’t work for money or earn a salary. Many of the clients from this bracket were in the habit of investing in products which would provide them with dividends as their monthly income. Their understanding of the process was that they were getting a certain amount as interest/dividends and their investment was safe.
A few of them were invested in monthly income plans, where particular dividends are issued every month. They were complaining that their investment value had reduced. This belief has been due to a slight misunderstanding in the terminology that only just came to light, as I explain below.
If you check your recent statement, your schemes/funds that were under the dividend distribution plan are now mentioned as IDCW. This means income distribution and capital withdrawal. This change in terminology was implemented from 1 April 2021 by SEBI ( Do check the AMFI site for more explanation: https://www.amfiindia.com/investor-corner/knowledge-center/FAQs.html ). It was initiated so that the investor understands that it is not the dividend or the interest which is distributed to the investor; it is, in fact, the income received by the fund and in the event of the income being less, then it was a part of capital that was distributed to you. This distribution led to the NAV going down. Therefore, in some cases where the dividend was distributed, the NAV of a scheme had actually decreased. This is because of the amount that is distributed to the investor plus the actual ‘mark to market’ which has reduced the NAV of the particular fund.
It is therefore by keeping such things in mind that I work on an asset allocation strategy, which would work as a regular income- providing corpus as well as give certain capital growth over a period of time. I am happy to say that this strategy, called the Life Line Plan, has worked as intended without giving an illusion to the investor of distributing dividends/interest to the clients. Moreover, the asset allocation works in a way to grow your capital too.
I hope this answers any doubts that you may have had and restored your faith in the importance of investing!
Thank you,
Anand Mhapralkar
CERTIFIED FINANCIAL PLANNER CM
+91 9820663784
Anant Wealth 