Same fund. Same 12 percent.
One pays tax every year.
Rs 10L in an equity fund, held 20 years. The only difference is which plan you ticked when you bought it.
|
Growth |
IDCW |
| Tax rate on gains | 12.5 | up to 30 |
| Taxed when | at exit | every year |
| Money that keeps compounding | all 12 | net 8.4 |
| Rs 10L after 20 years, net of tax | 85.7L | 50.2L |
The gap is Rs 35.5L on the same fund and the same return. Growth lets the whole 12 percent compound and taxes the gain once at 12.5 percent when you sell. IDCW hands the gain to you yearly, taxed at your slab as income, so it compounds on a smaller base every single year.