Mutual Fund Dividend Reinvestment

Mutual fund dividend reinvestment is a strategy that can allow you to grow your account quickly. Here are the basics of mutual fund dividend reinvestment and how it works.

Mutual Fund Dividends

When you invest in a mutual fund, there is a good chance that you will be able to receive some dividends as a shareholder. Mutual funds invest in stocks and bonds in most cases. Stocks regularly pay dividends to their shareholders. Bonds pay interest on a monthly basis. Both of these sources of income combine to provide dividends for the mutual fund to divide up between the investors.

Reinvesting Dividends

Many mutual funds will give you the option of immediately reinvesting your dividends into the fund. This will get you more shares in the mutual fund quickly. Once you purchase more shares, the next dividend payment that is issued will be larger. You can then use that money to buy even more shares. This compounding makes it possible to grow your account substantially in a short period of time.

Tax Considerations

Even though you are reinvesting the money into the mutual fund, you should not expect to get out of tax liability. You will still have to pay taxes on the money that you received at your regular marginal tax rate.

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