Investing in mutual funds is a way to increase your wealth. Various types of investments are available in the market, and an investor should choose wisely on where to invest his money for a long time. In this blog, we will discuss Lumpsum Investment In Mutual funds and what IDCW is in mutual funds.
Lumpsum means a large sum of money. A lumpsum investment in mutual fund means a large sum is invested through a single, one-time payment in a mutual fund scheme. The Lumpsum method of investing is very different from the Systematic Investment Plan (SIP), and investors who want to invest a large sum of money may prefer a lump sum mutual fund instead of a SIP.
The lumpsum method is straightforward for any new investor who ventures into the world of mutual funds, as he can invest the whole amount in one go and not on a monthly or quarterly basis.
This method of investing also helps the investor to understand more about the mutual funds and utilise their savings right, and they do not have to worry about committing to invest in the future. Let us now discuss the benefits of a lumpsum investment.
There are several advantages of Lumpsum Investment In Mutual Fund; some of them are:
To invest in any mutual fund, it is necessary that the fund is chosen very wisely and with proper research. Our team at Lakshmishree Investments provides our clients with any help they need and assists them in making sound financial decisions.
Before investing in lumpsum mutual funds, the investor must decide on what type of fund he wants to invest in and consider the factors that may influence the financial decision.
To invest in the mutual fund, the investor should complete all the processes involved, including the KYC process.
To know more about how to invest in mutual funds, you can contact us at Lakshmishree.
It is not necessary to open a Demat account for investing in Mutual funds but having it helps investors access to all of their investments through a single login. To read more about this read our previous blog, Why we need demat account for mutual funds?
IDCW stands for Income Distribution Cum Capital Withdrawl, which came into effect from the 1st of April 2021. The IDCW in mutual funds was previously known as the Dividend Option. The Securities Exchange Board of India (SEBI) decided to change it into the income distribution cum capita; withdrawal (IDCW).
When investing in mutual funds, investors can invest in it through a dividend. This is regarding the realisation of the profits. If he chooses this option, the profit that the investor earns is reinvested in the scheme and then the investor he can get the profits as dividends. The investor has the option that he may reinvest or get the payout.
In April 2021, when the Dividend option was renamed IDCW by SEBI, they also changed the name of the dividend reinvestment option, now known as reinvestment of income distributions and dividend transfer plan, now known as the transfer of income distribution and capital withdrawal.
The name that the Securities Exchange Board of India changes is just for the purpose of clarity, and there is no change in the meaning. The IDCW means the same as the Dividend option. The main reason behind the name change was that, in simple terms, a dividend means that it is the investor's income above his investment. This was not the case with mutual funds, as when the investor's profit increased, his investment's net asset Value (NAV) decreased.
In other words, when the investor gets a profit of Rs 1,000, his NAV would get less by the same amount of Rs 1,000, which meant that the investor was withdrawing the money directly from the capital amount.
This is the reason why SEBI decided to change the name from Dividend to Income Distribution Cum Capital Withdrawl. This change was also made to make the investors see the difference and make the mutual funds more transparent.
While the term dividend is the same for both the corporate companies as well as the Asset management companies, their meaning is very different.
The companies are not bound to announce their dividends they do it when they like and may omit a year as well, whereas the AMCs have to release the data of the accumulated dividends at least once a year.
The companies' profit belongs to them only, and the company board decides on the part of the profit they want to give their shareholders. In contrast, the profit of the AMCs belongs to the investors alone, who can only decide the dividend rate.
The investment options are rising every day in the Indian financial market, along with the number of investors who are willing to invest. Nowadays people prefer to invest in the mutual fund than in Gold.
The IDCW, which SEBI changed the name from the dividend option, is a way to bring more clarity to investing in mutual funds. To learn more about investing in mutual funds, read our previous blog here.
The full form of SIP is Systematic Investment Plan, where the investor can choose the amount he wants to debit from his account and invest it daily, monthly, or quarterly.
The income distribution indicates that the NAV is increasing, while the capital distribution tells the amount in the investor's capital.
The investors can see the IDCW written next to the name of the mutual fund scheme in the document, and if you still need clarification regarding it, feel free to contact us.
