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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 ?
"Over 1.8 million customers currently have their prizes reinvested."
TD Asset Management Inc.'s annual reinvested distributions generally represent realized capital gains within the ETFs.
According to the statistics for 2015, the number of firms that reinvested their profit went up by 73.56 percent from the year before and the amount of reinvested profit in 2015 increased by 83.34 percent from 2014.
But I fear it will become an auction meaning it will be a late deal leaving little or no time for the money to be reinvested.
Under the reinvestment option, the dividend declared is reinvested in the fund and is considered as a new investment and so is locked in for three years.
Equity trading analysts at Citi expect much of the Verizon stake to be cashed in, with between PS7.5bn and PS15.6bn reinvested in FTSE 100 stocks by active investors alone.
BT said the move will help deliver savings, which will be reinvested in facilities management services.
CASH raised from properties sold under the right to buy scheme should be reinvested in building new affordable homes, Welsh Conservatives suggest today.
The fund's dividend may also be reinvested on 1 August 2013.
Fourhorns expects the additional revenue to be reinvested in economic development.
Also, strong domestic market demand for pulp in China will buoy Chung Hwa Pulp, which has set up a reinvested company with Yuen Foong Yu in Guangdong, southern China.