Automatic Reinvestment is the strategy of putting proceeds from the investment, such as dividends or capital gains, back into the same fund by buying additional units. This approach is ideal for long term investors who are looking to grow their investments through the power of compounding. Further, there is no need to manually reinvest the earnings, which will take a lot of effort and time.
How Automatic Reinvestment Works
When one opts for Automatic Reinvestment, all the earnings made from the fund in the form of dividends or capital gains will not be given to the investors in the form of cash. Rather, it will be used to buy additional units of the same fund. One can effortlessly reap the benefits of wealth diversification as long as the fund performs decently.
Example of Automatic Reinvestment
Let us assume that your fund made a ₹1000 in dividends, that’s automatically reinvested when buying additional units at the current market price instead of cash payout and spending it somewhere else. This will continue for a long time, endlessly providing reinvestment. This income, when compounded, aids investment growth significantly.
Key Points About Automatic Reinvestment
Here’s what you need to know about automatic reinvestment:
- Power of Compounding: By reinvesting, the growth of your investment can be accelerated as the returns from earnings grow.
- Long-Term Strategy: This is the optimal strategy if you desire to maximize growth without requiring frequent manual efforts.
- No Cash Payouts: Unlike other investments, the earnings are not initially disbursed to you and instead are used to purchase additional funds.
- Profitability: If a fund is performing well and yielding consistent returns, you may choose this option due to its potential for profit.
Conclusion
Automatic Reinvestment is a powerful strategy for growing your investments over time. If you’re a long-term investor looking to maximize growth with minimal effort, consider starting your investment journey today with Religare Broking.
