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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
To help you provide for this, Bajaj Finance allows you to either reinvest your principal or your principal and interest amount.
This addresses the shortcoming of the traditional pre trade method as the manager can only reinvest on a maintain or improve basis in an asset with better or similar credit quality as the asset that paid down, This method also means that if the manager does not reinvest immediately any possible portfolio migration in between pay down and reinvestment would also have to be offset by the reinvestment.
"For years, Asian and Bahraini businessman have made profits and we want them to reinvest this in Bahrain rather than looking abroad.
The new leasing transaction for RPB aligns with the company's strategy to increase efficiencies and reinvest capital back to its mission of providing major eye research funding to scientific institutions in the U.S.
What concerns me more is: Will all the money be reinvested in a so-far flatlooking squad?
"We have assets on the pitch, but players will always leave when it's right for Huddersfield Town and the price is right - the important thing being we always reinvest in the squad.
The central bank also said it would reinvest Au4.35 billion of proceeds from a maturing January 2015 bond in its Au375 billion ($565 billion) of quantitative easing asset purchases.
Instead, companies may actually report higher EPS if they reinvest cash proceeds from exercised stock options into internal investment opportunities.
By bringing these employees into BTFS we're able to make savings which allows us to reinvest in the business."
MIMUSA has increased its ownership interest in MIC through its decision to reinvest base management and performance fees related to its management of the listed company in additional shares and pursuant to the programme, MIMUSA will sell a portion of its shares on a pre-planned basis, to manage the rate of growth in its position in MIC, the company said.
and it will allow us to reinvest in our economic development opportunities," said Chief Jordi Fourhorns.