Growth option
A mutual fund option that keeps all gains invested in the scheme instead of paying them out, so returns show up entirely in the NAV.
Under the growth option, a scheme keeps all its income and gains invested. Nothing is paid out; the NAV reflects everything the portfolio earns, net of costs. You realise gains only when you redeem units.
Why it matters
The growth option lets returns compound without interruption, which suits long-term goals. It is also usually simpler for tax: under current rules, you pay capital gains tax only when you redeem, rather than income tax on each distribution.
How to read it
| Growth | IDCW | |
|---|---|---|
| Gains | Stay invested | Paid out from time to time |
| NAV | Reflects all returns | Falls by each payout |
| Tax timing (current rules) | On redemption, as capital gains | On each payout, as income |
- NAV tells the whole story. With no payouts, the growth option’s NAV history is a clean record of the scheme’s performance.
- Need income? Plan it. Investors who want cash flow from a growth-option holding can set up an SWP, which redeems a fixed amount on a schedule they control.
Common misconceptions
- “The growth option takes more risk.” The option doesn’t change the portfolio. Growth and IDCW options of a scheme hold the same investments.
- “Growth means the value only goes up.” It describes what happens to gains — they stay invested — not whether there will be any.
In India: Growth and IDCW options exist within both the direct and regular plans of a scheme, giving four variants with separate NAVs. Make sure you compare the same variant.
Related terms
IDCW
Income Distribution cum Capital Withdrawal
A mutual fund option that pays out distributions from time to time; payouts can include part of your own capital, not just income.
NAV
Net Asset Value
The per-unit value of a mutual fund scheme, worked out from the market value of its holdings after expenses and published each business day.
SWP
Systematic Withdrawal Plan
An instruction to redeem a fixed amount from a mutual fund at regular intervals, used to draw a steady cash flow from an existing investment.
Compounding
Earning returns on past returns as well as on the original amount, so growth accelerates the longer money stays invested.
Capital gains
The profit made when you sell or redeem an investment for more than it cost; taxed as short- or long-term depending on how long you held it.