What are the key benefits of SBI Credit Cards?

SBI Credit Cards offer a wide range of benefits, including rewards, cashback, lounge access, discounts, and insurance coverage.

How can I apply for an SBI Credit Card?

You can apply for an SBI Credit Card online through the Paisabazaar platform, where you can compare card options and check for pre-approved offers.

What factors should I consider when choosing an SBI Credit Card?

Consider your spending habits, lifestyle, and financial goals to select a card that best suits your needs, such as travel, shopping, or rewards.

How can I manage my SBI Credit Card efficiently?

SBI Card offers a user-friendly mobile app and online banking services to help you manage your card, check statements, make payments, and access additional features.

What precautions should I take to avoid accumulating credit card debt?

Responsible credit card usage includes paying bills on time, managing credit limits wisely, and avoiding unnecessary spending to prevent debt accumulation.

IDCW vs Growth: A Comparison of Mutual Fund Options

Investors have a variety of options when it comes to investing in mutual funds, based on their individual needs. However, two of the most common choices are Income Distribution Cum Withdrawal Plan (IDCW), formerly known as the dividend option, and the growth option. The debate between IDCW and Growth options in mutual funds is quite common among investors.

Under the IDCW option, the profits made by the mutual fund scheme are paid out to investors at regular intervals. On the other hand, in the Growth option, the profits made by the scheme are reinvested in the fund instead of being paid out to investors. In order to understand the difference between IDCW and Growth plans, let's take a closer look.

The table below summarizes the key parameters of IDCW vs Growth Plan:

Parameters IDCW Plan Growth Plan

Fund Profits Distributed to investors Reinvested in the scheme

NAV Dividends are paid from the fund NAV, resulting in a lower ex-dividend NAV. NAV is higher due to the reinvested profits earning additional profits.

Total Returns Lower compared to the growth plan, as periodic dividend payouts reduce overall returns. Generally higher than the IDCW plan, as it focuses on long-term wealth creation.

Taxation Dividend income is taxable based on the individual's income tax slab rate. Short-term or long-term capital gains tax rates apply, depending on the investment holding period.

Suitability Investors seeking regular cash flow from their investments. Investors aiming for long-term goals or wanting to grow their money.

To illustrate the impact of dividends on investment value, let's consider an example for IDCW and Growth plans:

IDCW Plan Growth Plan

NAV of a mutual fund on 1st April 2021 INR 20 INR 20

Investment amount INR 10,000 INR 10,000

Units Allotted 500 500

NAV of a mutual fund on 31st March 2022 INR 25 INR 25

Dividend Declared INR 5 –

Dividend Received INR 2500 (500*5) –

Post Dividend NAV INR 20 (25-5) INR 25

Units Issued Against Dividends INR 125 (2500/20) –

Total Number of Units Held 375 (500 – 125) –

NAV INR 20 INR 25

Value of the Investment INR 7500 INR 12500

From this example, it is clear that the NAV and final investment value for the growth plan are higher. This is because when dividends are declared, the NAV and investment value decrease to the extent of the dividend paid by the fund.

The choice between IDCW and growth plans ultimately depends on investment preferences and goals. While both options have the same underlying portfolio, the difference lies in how profits are distributed or reinvested.

The IDCW plan is suitable for investors seeking regular income from their investments, as it provides a certain level of liquidity. The invested money flows back to them at regular intervals. However, under this option, investors miss out on the benefits of compounding, as a portion of the investment value does not participate in future gains.

On the other hand, the growth plan is ideal for investors looking to grow their money in the long term. This option allows for the power of compounding, as profits are reinvested, leading to wealth creation. Capital gains tax applies based on the fund type and investment holding period, so it is crucial for investors to consider the tax implications and investment objectives when choosing the option.

Tax implications differ for IDCW and Growth plans. Under the IDCW plan, dividends received from mutual funds are taxable as income from other sources, and investors pay tax according to their individual income tax slab rate. In the Growth plan, taxation occurs when the investor redeems the fund units, and the rates depend on whether it is an equity or debt fund.

For equity funds, short-term capital gains are taxable at 15% if the holding period is less than a year. Long-term capital gains are exempted from tax up to INR 1 lakh, and thereafter taxed at 10% for holding periods longer than one year.

In debt funds, short-term capital gains are taxed based on the individual's income tax slab rate if the holding period is less than three years. Long-term capital gains are taxed at 20% with indexation benefit for holding periods longer than three years.

Starting from April 1st, 2023, capital gains from mutual funds will be taxed according to the investor's income tax slab rate. As a result, debt mutual funds will no longer enjoy LTCG benefits.

In conclusion, investors should carefully consider their investment goals and tax implications when choosing between IDCW and growth plans in mutual funds.