Automatic dividend reinvestment

Question

Quizplus · Accepted Answer

Automatic dividend reinvestment allows the investor to use the dividends earned to buy additional shares of the same stock or mutual fund, which compounds the share ownership over time. This can lead to an increase in the overall value of the investment. However, it does not necessarily defer taxes on the income earned, and it could potentially reduce investment yields if the investor would prefer to receive the dividend income as cash. It is not a requirement for all mutual fund companies, as some offer the option for investors to receive their dividends in cash instead of reinvesting them.

Automatic Dividend Reinvestment