Growth vs IDCW Mutual Funds- Which Is Better for NRIs?

NRIs can get the DTAA benefit by obtaining a tax residency certificate (TRC) from their resident country and submitting it with a self-declaration form to the mutual fund house. DTAA allows for tax credits in the resident country for paid taxes in India, reducing the tax burden. Additionally, the applicable tax rate will be the lower of either the standard tax rate of India or the DTAA rate.

Based on the NRI bank account types, repatriation rules vary. Investments through an NRE account provide complete repatriation for both capital gains and principal amount without any restrictions. With NRO accounts, NRIs face strict regulations, with repatriation limited to $1 million per financial year and additional document submission.

On Growth plans, taxes are imposed upon redemption, with different tax rates for long-term and short-term capital gains. In contrast, IDCW payouts, through TDS, up to 20% face immediate taxation.

In the Growth option, profits are reinvested back into the fund through compounding, providing long-term returns. In contrast to this, IDCW offers regular payments but over long-run reduces returns. Considering this, for NRIs, Growth is generally more tax-efficient as upon redemption, taxes are imposed on gains.