Automatic Reinvestment

Automatic reinvestment

See: Constant dollar plan.

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automatic reinvestment

The automatic purchase of additional shares of an open-end investment company using any dividends and capital gains distributions that are made by the firm. This option (in lieu of actually receiving payments) permits a mutual fund shareholder to increase his or her holdings in the fund. Taxes must be paid on the amount reinvested even though no funds are received directly. See also dividend reinvestment plan.

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Automatic Reinvestment

A practice or agreement in which dividends on a security are used to buy more shares of the same security, rather than disbursed to the investor in cash. Automatic reinvestment is relatively common in mutual funds; investors agree to use dividends and other capital gains to reinvest in more shares of the mutual fund. While this involves assuming more risk in the mutual fund, it carries the possibility of higher returns.