Parag Parikh Flexi Cap Fund has recently announced that it would be introducing the option of IDCW (Income Distribution cum Capital Withdrawal).
PPFAS was one of the few and rare fund houses to not offer the hitherto dividend plan option.
However, in light of the recent tax changes to debt funds, the fund house believes that the IDCW plan could be a more tax efficient plan for some investors.
Investors should however be prudent and pay heed to their tax advisors regarding this.
Parag Parikh Flexi Cap Fund now offers two options namely:
- Growth &
- IDCW (Income Distribution cum Capital Withdrawal)
Within the IDCW (Income Distribution cum Capital Withdrawal) the fund house further offers two more options:
- Payout of IDCW &
- Re-Investment of IDCW
Whenever there is a fundamental change in the fund offering the fund house has to offer existing investors to option to exit from the scheme without paying any exit load for a particular time period which in this case is 31st October 2025.
There is no fundamental change process or asset allocation plan of Parag Parikh Flexi Cap Fund.
Investment Strategy of Parag Parikh Flexi Cap Fund
Parag Parikh Flexi Cap Fund as the name suggests is a flexi cap fund, meaning it has no restriction to any market cap as long as 65% is invested in to equities at all times.
It comparatively has higher cash holdings and is one of the few flexi cap mutual fund schemes to have foreign holdings along with domestic companies.
The fund has a tendency to underperform in a bull phase of the market due to not succumbing to momentum picks and outperform its peers in a bear phase due to higher cash holdings.
In recent years it has changed its investment strategy from having a focused approach to a more diverse approach which can be attested by it holding 80 stocks as per August 2025.
Asset Allocation Pattern of Parag Parikh Flexi Cap Fund
Instruments | Minimum | Maximum |
Equity & Equity related instruments | 65 %
| 100 % |
Debt Securities, Money Market Instruments | 0 % | 35 % |
Foreign Equity & Equity related instruments | 0 % | 35 % |
Debt Securities (including Units) issued by REITS & InvITs | 0 % | 10 % |
What are the different options in Mutual Funds?
When you invest in mutual funds you get the following two options:
- Growth
- Dividend
The growth option means any appreciation the fund makes would be added to your valuation amount and will stay the same way until and unless you decided to withdraw.
The dividend option can be further divided in to three different options :
‘Pay-out of Income Distribution cum capital withdrawal option’ which was earlier named as Dividend pay-out plan.
‘Reinvestment of Income Distribution cum capital withdrawal option’ which was earlier named as Dividend reinvestment plan.
‘Transfer of Income Distribution cum capital withdrawal option’ which was earlier named as Dividend transfer plan.
This name change was necessitated because investors were earlier under the belief that dividends received by them were a part of their profits when in fact they were also a part of their capital too.
Basically, investors were paying tax on taking back their own capital in the form of dividend.
Tax on dividend received from Mutual Funds
Dividend Distribution Tax (DDT) has been abolished for mutual funds from 1st April 2020 as announced in the budget for 2020.
Earlier dividend received from mutual funds was tax free in the hands of the investor since tax for the same was already paid by the mutual fund in the form of Dividend Distribution Tax (DDT).
Due to this the dividend was received by an investor but the tax was paid by the mutual fund company.
With a fixed Dividend Distribution Tax rate, small and big investors alike ended up paying the same tax rate irrespective of the dividend amount.
Under the new rule now, effective 1st April 2020 onwards, dividend received from mutual funds is now added to investors income and gets taxed according to the investors tax bracket.
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Should you invest in the IDCW (Income Distribution cum Capital Withdrawal) plan?
Many individuals are dependent on the interest gained from their fixed deposits to manage their monthly expenses.
Certain other fixed saving instruments can also provide the same.
An equity mutual fund cannot provide the same, that’s the case with Income Distribution cum Capital Withdrawal (IDCW) plan too.
Even under the IDCW option, there is no guarantee you will receive dividend and when you do, keep in mind that you receive a portion of your own capital back and not just profits in the form of dividends.
This was the case earlier too which is why the ‘Dividend’ option was renamed as ‘Income Distribution cum Capital Withdrawal’ plan since most investors weren’t aware that they were receiving a portion of their capital back as dividends.
The Income Distribution cum Capital Withdrawal should be avoided at all costs since it serves no real purpose.
If you want to generate some sort of income from equity mutual funds then the better option would be to go for Systematic Withdrawal Plan (SWP) in such a manner that your capital is diluted very little.
In such a case too you will first need to make sure that your capital stays invested for a long time so it can generate some sort of returns before you can apply the SWP method.
Therefore if you’re someone who’s dependent on your investments to generate income then equity mutual funds should be avoided.
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