Ask our experts – July 2023

Investment queries

Could you please explain the differences between IDCW REINVEST and GROWTH? Can growth be converted to IDCW?   – Sudha P, Mumbai

Generally, mutual fund schemes have two investment options – Growth and IDCW, expanded as Income distribution cum capital withdrawal (formerly known as dividend option).

In Growth option, the profits made in a scheme’s portfolio (including dividends received, if any) are re-invested in the scheme instead of being paid out. It is ideal from the long-term compounding and capital appreciation point of view.

Under the IDCW option, profits made by the mutual fund scheme (or as the case may be) are paid out to investors at certain intervals like annual, daily, monthly, quarterly etc. or as decided by the fund manager. If investors want regular income from their investments, at a frequency decided by the fund manager, then they may opt for IDCW option. 

However, it is important to keep in mind that the income is paid from a scheme’s income or capital and is not a separate benefit. Additionally, money received by the investor in the form of IDCW is added to gross taxable income and taxed at the investor’s applicable income tax rate.

It is possible to convert Growth option to IDCW.

I am an NRI from the Middle East. Can I trade in the Indian stock market?  What are the steps in that process?  Any special trading regulations for NRIs? – Mathew Thomas, Pala

Yes, an NRI from the Middle East may invest in the Indian Stock Market. You must open NRE or NRO (as necessary) SB account and PIS account with any bank and NRE or NRO Trading and Demat account with any Broker. In the cash market segment, NRIs are only permitted to conduct delivery-based transactions, and are allowed to do F&O transactions only through an NRO Trading account.

Please suggest the best Shariah-compliant mutual fund.  Are there any such shares suitable for me? – Abdul Lateef, Qatar

Tata Ethical Fund and Taurus Ethical Fund are Shariah compliant mutual funds available at present. The exchange traded fund Nippon India Nifty 50 Shariah BeES is a Shariah compliant passive investment option. You can get a sense of the kind of sectors and stocks that are taken into consideration in this theme by looking at the portfolio details of the aforementioned scheme.

I have investments in shares and mutual funds SIPs as well.  If I become an NRI, what happens to my investments?   What should I do with the shares I already own? Is converting my demat account to an NRI account mandatory? -Raja Reddy, Telangana

Once you become an NRI, you must update your KYC to reflect your NRI status. While updating your bank accounts to NRI status, you can also initiate the process to update your status in mutual funds and Demat account.

In the case of SIPs, you can stop the current SIPs and restart fresh SIPs in NRI status. If your MF distributor has a portal, you can use it to request the cancellation of current SIPs. Alternatively, you can use the websites for mutual funds, your distributor’s office, or RTAs for mutual funds.

With regards to the shares (in demat ac), you can change the status of your account to NRO. You may approach your broker/depository participant to update the changes.

Further going forward, if you wish to invest in shares and MFs with repatriation benefits, you may have to open accounts in NRE status and transact through them. Otherwise, you can continue using your NRO accounts.

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