Reinvestment

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Reinvestment

Use of investment income to buy additional securities. Many mutual fund companies and investment services offer the automatic reinvestment of dividends and capital gains distributions as an option investors.

Reinvestment

The act or practice of taking profits or other proceeds from investments and making other investments with them. It nearly always means that one is investing in more of the same security. For example, one may take dividends from a stock and buy more shares with it or may take coupon payments to buy more of the same bond issue. Reinvestment often increases the value of a security.

Reinvestment.

When you own certain stocks and most mutual funds, you can reinvest the dividends or distributions to buy more shares instead of receiving a cash payout.

In a corporate Dividend Reinvestment Plan (DRIP), for example, a company offers you the right to reinvest any cash dividends automatically to buy more stock. When you open a mutual fund account, you're generally offered an automatic reinvestment option as well.

One benefit of reinvestment programs is that in most cases you can make the new investments without incurring the usual sales charges, so it can be a lower cost way to build your investment portfolio.

One potential drawback, if you're reinvesting in a taxable account, is that you acquire shares at different prices, so figuring the cost basis for capital gains or losses when you sell can be more complicated than if you made fewer, larger purchases. It's also true that you owe income or capital gains tax in the year the money is reinvested, which isn't the case in a tax-deferred or tax-free account.

You will also want to consider the impact of reinvestment on the diversification of your portfolio, since buying additional shares increases the percentage of your portfolio that is allocated to a particular stock or mutual fund.

References in periodicals archive ?
Directives to Mutual Fund Houses to discontinue re-investing dividend re-investment option were given by Association of Mutual Funds of India (AMFI) sources said.
The dividend option comes with a dividend payout and a dividend re-investment option.
And, I'm happy to report that the re-investment that these theme issues were design to help spark is certainly trending up.
Egyptian re-investment into Africa is set to become one of the country's highest economic priorities, according to Minister of Housing, Utilities and Urban Development Ibrahim Mahlab.
He added: "Officers have for some time been exploring options for grants to resource a re-investment programme in Cosmeston Lakes Country Park as a whole.
Also, approvals for re-investment of legally acquired funds by foreign investors in China will be canceled.
"Sturbridge has seen a resurgence in new and re-investment along its commercial corridors over the past 18 months," Mr.
Money from the sale of the school's lambs, sold at Bryncir market, will enable future re-investment in the flock, said Mr Hughes.
Because of low cost-recovery and re-investment, the capital stock in parts of the energy sector has been run down and, according to the World Bank, has been "in urgent need of rehabilitation or replacement".
Addressing the PICPA, he noted the contribution of Filipino finance professionals in developing a strong foundation for Qatar and urged them to help the Philippines become an economic power through re-investment of savings.
She said she favors re-investment in her company in terms of technology and training.
The company's strategy of continuing re-investment, renewal and development of its fleet is proceeding, as has been its practice for more than forty years, it added.