Which is better dividend payout or dividend reinvestment?
Which is better dividend payout or dividend reinvestment?
Both growth and dividend reinvestment plans do not pay a dividend. However, a fresh number of units are allotted to the investors at a reduced NAV in a dividend reinvestment plan….Example of Growth vs Dividend Reinvestment.
| Growth | Dividend Reinvestment | |
|---|---|---|
| Post Dividend NAV | NAV remains the same | INR 25 (30-5) |
Do you pay taxes on dividends if you reinvest?
Generally, dividends earned on stocks or mutual funds are taxable for the year in which the dividend is paid to you, even if you reinvest your earnings.
What is difference between payout and reinvest?
Under the dividend payout option, the mutual fund issues dividends to unit holders, which are transfered to their bank accounts. Under the dividend reinvestment option, the dividend is declared, but not physically paid out. Instead, it is reinvested back into the scheme.
Where do reinvested dividends go?
Cash dividends paid by the company are automatically reinvested into additional shares. Once the investor has enrolled in a DRIP, the process becomes entirely automated and usually requires minimal attention or monitoring. Many dividend reinvestment plans are often part of a direct stock purchase plan.
How are reinvested dividends treated?
Dividend Reinvestment
- Spend it. Use the cash to supplement your income.
- Save it. Bank the money to fund a future expense.
- Invest it. Combine the dividend with other payments or sources of cash to buy shares of a different company or fund.
- Reinvest it. Use the money to buy more shares of the same company.
How do reinvested dividends affect cost basis?
Reinvesting dividends increases the cost basis of the holding because dividends are used to buy more shares. For example, let’s say an investor bought 10 shares of ABC company for a total investment of $1,000 plus a $10 trading fee.