Should i reinvest dividends in mutual funds

However, if the stock or fund pays out another cent dividend, the investor can purchase 1. Partial share purchases through dividend reinvestment are common for mutual funds. Many individual equities and mutual funds pay out regular dividends — anywhere from monthly to quarterly to annually — thus giving investors the opportunity to regularly reinvest.

Of course, there are valid reasons for investors to take their dividend payments in cash. A financial professional can help you decide whether dividend reinvestment is appropriate for your situation and goals. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. Investors should carefully consider investment objectives, risks, charges and expenses.

This and other important information is contained in the fund prospectuses and summary prospectuses , which can be obtained from a financial professional and should be read carefully before investing. All other company and product names mentioned are the property of their respective companies. This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

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Your privacy is important to us. Share this article. Scripbox » Growth vs Dividend Reinvestment. Article Content. What is a Growth Option in Mutual Funds? When is a Growth Option Suitable? When is a Dividend Reinvestment Option Suitable? Posted on 19 Aug, Sannihitha Ponaka See all articles by Sannihitha Ponaka. In addition to that, some companies sell shares via their DRIP program at a discount to the current market price.

However, not all DRIPs offer these benefits, so investors need to read the fine print carefully. For example, some companies have investment minimums such as a requirement to own a certain number of shares or a certain dollar value. Further, some also charge a service fee and a brokerage commission. Dividend reinvestment is a great way for an investor to steadily grow wealth. Many brokers and companies enable investors to automate this process, allowing them to buy more shares even fractional ones with each payment.

That compounds their returns, which can add up over time. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Investing Best Accounts. Stock Market Basics. Stock Market. Industries to Invest In. Getting Started. Planning for Retirement. Dividends from municipal bond mutual funds are tax-exempt but still must be included in the appropriate space on your tax return.

Because capital-gains distributions represent earnings on the value of securities held by a mutual fund, these distributions are almost always reinvested. If they are not, the value of a mutual fund account will not reflect the actual investment returns of the securities. When a capital-gains distribution is paid, the fund share price drops by the amount of the distribution.

Reinvesting capital gains maintains a fund account value, rather than having the value decline by the amount of the distribution. The option to reinvest dividends automatically is a benefit of mutual fund investing. Mutual funds are one of the few types of investments where earnings can be reinvested to compound and grow. Dividends and capital gains are reinvested at no cost , which is especially beneficial for load funds, which have a sales charge to purchase shares. If a fund pays regular monthly or quarterly dividends, reinvestment allows an investor to buy shares as the share price swings both high and low, taking advantage of those periods when the markets are down.