{"id":5872,"date":"2022-08-23T13:13:55","date_gmt":"2022-08-23T13:13:55","guid":{"rendered":"https:\/\/rakshithpai.com\/?p=5872"},"modified":"2022-08-23T13:21:22","modified_gmt":"2022-08-23T13:21:22","slug":"dividend-reinvestment-plan","status":"publish","type":"post","link":"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/","title":{"rendered":"Dividend Reinvestment Plan: Everything You Need to Know"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-662f1d46dc16e\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\" style='display:none' id=\"ez-toc-cssicon-toggle-item-662f1d46dc16e\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#What_is_a_Dividend_Reinvestment_Plan_DRIP\" title=\"What is a Dividend Reinvestment Plan (DRIP)?\">What is a Dividend Reinvestment Plan (DRIP)?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#How_Do_DRIP_Works\" title=\"How Do (DRIP) Works?\">How Do (DRIP) Works?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#DRIP_example\" title=\"DRIP example:\">DRIP example:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Types_of_Dividend_Reinvestment_Plan\" title=\"Types of Dividend Reinvestment Plan:\">Types of Dividend Reinvestment Plan:<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Company_DRIPs\" title=\"Company DRIPs\">Company DRIPs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Broker_DRIP\" title=\"Broker DRIP\">Broker DRIP<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Third-Party_DRIP\" title=\"Third-Party DRIP\">Third-Party DRIP<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Advantages_of_Dividend_Reinvestment_Plan\" title=\"Advantages of Dividend Reinvestment Plan:\">Advantages of Dividend Reinvestment Plan:<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Economical\" title=\"Economical\">Economical<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Low_Commissions\" title=\"Low Commissions\">Low Commissions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Compounding\" title=\"Compounding\">Compounding<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Funds_for_Company\" title=\"Funds for Company\">Funds for Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Long_term\" title=\"Long term&nbsp;\">Long term&nbsp;<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Disadvantages_of_Dividend_Reinvestment_Plan\" title=\"Disadvantages of Dividend Reinvestment Plan:\">Disadvantages of Dividend Reinvestment Plan:<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Dilute_Equity\" title=\"Dilute Equity\">Dilute Equity<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Taxable\" title=\"Taxable\">Taxable<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Not_Short-term\" title=\"Not Short-term\">Not Short-term<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Share_Price\" title=\"Share Price&nbsp;\">Share Price&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Non-Diversifiable\" title=\"Non-Diversifiable\">Non-Diversifiable<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#How_Should_I_do_DRIP_Investing\" title=\"How Should I do DRIP Investing?\">How Should I do DRIP Investing?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Tax_on_DRIP_Investment\" title=\"Tax on DRIP Investment:\">Tax on DRIP Investment:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Conclusion\" title=\"Conclusion:\">Conclusion:<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/rakshithpai.com\/dividend-reinvestment-plan\/#Also_read\" title=\"Also read:\">Also read:<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_a_Dividend_Reinvestment_Plan_DRIP\"><\/span><strong>What is a Dividend Reinvestment Plan (DRIP)?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>An investment account known as a &#8220;dividend reinvestment plan&#8221; enables investors to &#8220;roll over&#8221; or reinvest their dividends in order to purchase further shares of the company.&nbsp;<\/strong><\/p>\n\n\n\n<p>The business distributes cash dividends to shareholders from its profits, giving them the option to use those funds to purchase additional shares of the business. &#8220;Dividend reinvestment&#8221; is the name of this fundamental tactic.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-1 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button is-style-outline\"><a class=\"wp-block-button__link has-text-color has-background\" href=\"https:\/\/zerodha.com\/open-account?c=PR4768\" style=\"border-radius:50px;background-color:#e4fa00;color:#0f0027\" rel=\"nofollow\"><strong>Open Zerodha Account Now!<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<p>Using a <a href=\"https:\/\/rakshithpai.com\/best-dividend-paying-stocks-in-india\/\">Dividend<\/a> Reinvestment Plan (DRIP), <strong>shareholders can automatically convert their cash payouts into more company shares. <\/strong>Usually, the corporation will impose a cap on the number of shares. For each DRIP purchase, the investor may buy up to 100 shares in a single transaction.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_Do_DRIP_Works\"><\/span><strong>How Do (DRIP) Works?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Typically, shareholders get dividend payments in the form of a cheque or a direct deposit into their bank account. <strong>Dividend reinvestment programs, or DRIPs, allow shareholders to reinvest the full amount of a declared dividend into additional shares that are purchased directly from the corporation. <\/strong>They are not tradeable on stock exchanges because shares acquired through a DRIP often come from the company&#8217;s own reserves. Additionally, shares must be purchased directly from the corporation.<\/p>\n\n\n\n<p>Most DRIPs let investors buy shares at a big discount to the current share price, with or without paying a commission.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DRIP_example\"><\/span><strong>DRIP example<\/strong>:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A number of brokerage firms offer shares in the company, Pai Ltd. The company recently established its Stock Purchase Plan for stockholders who own 1,000 or more shares of Pai Ltd. <strong>In accordance with these regulations, shareholders may purchase additional shares subject to certain conditions if they acquire 1,000 or more shares within the next 30 days following the settlement date.&nbsp;<\/strong><\/p>\n\n\n\n<p>For instance, if a shareholder buys 10,000 shares of Pai Ltd throughout their tenure, they will be eligible to purchase up to five additional shares for each share they already own. Each new share will cost 90% of the lowest trading price between the two trading days prior to the purchase agreement, which is the purchase price.<\/p>\n\n\n\n<p><strong>Dividend reinvestment plans can be a terrific way to invest in developing businesses, even though they aren&#8217;t for everyone. If you want to build up sizable holdings in a company for the long term, investing in a DRIP is advised.<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-embed aligncenter is-type-wp-embed is-provider-rakshith-pai wp-block-embed-rakshith-pai\"><blockquote class=\"wp-embedded-content\" data-secret=\"Ir2Qp6F8qw\"><a href=\"https:\/\/rakshithpai.com\/best-dividend-paying-stocks-in-india\/\">15 Highest Dividend Paying Stocks in India 2023<\/a><\/blockquote><iframe class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;15 Highest Dividend Paying Stocks in India 2023&#8221; &#8212; \" src=\"https:\/\/rakshithpai.com\/best-dividend-paying-stocks-in-india\/embed\/#?secret=nuvFypp9J8#?secret=Ir2Qp6F8qw\" data-secret=\"Ir2Qp6F8qw\" width=\"200\" height=\"200\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Types_of_Dividend_Reinvestment_Plan\"><\/span><strong>Types of Dividend Reinvestment Plan:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>There are three popular forms of dividend reinvestment programs:<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Company_DRIPs\"><\/span><strong>Company DRIPs<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>When it comes to investor relations, larger corporations may have their own DRIP department. <\/strong>Bypassing the requirement for a broker, you may use your reinvested dividends to purchase shares directly from the firm at a lower price and with no commissions. And it helps businesses attract and retain investors for the long haul.<\/p>\n\n\n\n<p>So, a dedicated division inside the corporation is responsible for administering the DRIP.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-2 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button is-style-outline\"><a class=\"wp-block-button__link has-text-color has-background\" href=\"https:\/\/zerodha.com\/open-account?c=PR4768\" style=\"border-radius:50px;background-color:#e4fa00;color:#0f0027\" rel=\"nofollow\"><strong>Open Zerodha Account Now!<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Broker_DRIP\"><\/span><strong>Broker DRIP<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>There are certain firms that don&#8217;t provide a DRIP, but investors may still get one through their broker for the stocks they choose.<strong> The intermediary will make market purchases of stock for a DRIP run by a broker. <\/strong>Brokers may or may not charge a commission on DRIP stock transactions, depending on their connection with the buyer.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Third-Party_DRIP\"><\/span><strong>Third-Party DRIP<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>The DRIP is managed entirely by an external firm for the company.<\/strong> This is common practice when running a company&#8217;s own DRIP would be too time-consuming and expensive.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_of_Dividend_Reinvestment_Plan\"><\/span><strong>Advantages of Dividend Reinvestment Plan:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>The benefits of a dividend reinvestment scheme are as follows:<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Economical\"><\/span><strong>Economical<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>The majority of businesses offer their shares at a discount to the going rate on the market.<\/strong> When taking part in a DRIP, shareholders can purchase shares at a lower cost basis.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Low_Commissions\"><\/span><strong>Low Commissions<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>When buying shares using DRIPs, shareholders are typically not charged a commission or additional brokerage fees. <\/strong>As a result, they benefit financially from taking part in a DRIP.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Compounding\"><\/span><strong>Compounding<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>DRIPs assist investors in achieving compounding returns because cash distributions are automatically reinvested. <\/strong>Reinvestment results in compounding, which accelerates the growth of the investment.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Funds_for_Company\"><\/span><strong>Funds for Company<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>DRIPs enable a business to raise more financing.<\/strong> The company can get more money by giving shareholders shares right away in exchange for cash dividend payments.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Long_term\"><\/span><strong>Long term&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>Participants in DRIPs frequently select a lengthy investment horizon. <\/strong>So, a DRIP can help a business build a group of loyal, long-term shareholders.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/rakshithpai.com\/wp-content\/uploads\/2022\/08\/Why-Invest-in-Dividend-Reinvestment-Plan-1024x576.jpg\" alt=\"\" class=\"wp-image-5874\" width=\"1055\" height=\"593\" srcset=\"https:\/\/rakshithpai.com\/wp-content\/uploads\/2022\/08\/Why-Invest-in-Dividend-Reinvestment-Plan-1024x576.jpg 1024w, https:\/\/rakshithpai.com\/wp-content\/uploads\/2022\/08\/Why-Invest-in-Dividend-Reinvestment-Plan-300x169.jpg 300w, https:\/\/rakshithpai.com\/wp-content\/uploads\/2022\/08\/Why-Invest-in-Dividend-Reinvestment-Plan-768x432.jpg 768w, https:\/\/rakshithpai.com\/wp-content\/uploads\/2022\/08\/Why-Invest-in-Dividend-Reinvestment-Plan-150x84.jpg 150w, https:\/\/rakshithpai.com\/wp-content\/uploads\/2022\/08\/Why-Invest-in-Dividend-Reinvestment-Plan.jpg 1280w\" sizes=\"(max-width: 1055px) 100vw, 1055px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Disadvantages_of_Dividend_Reinvestment_Plan\"><\/span><strong>Disadvantages of Dividend Reinvestment Plan:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>In addition to its benefits, a dividend reinvestment plan has several drawbacks, such as:<\/strong><\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-3 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button is-style-outline\"><a class=\"wp-block-button__link has-text-color has-background\" href=\"https:\/\/zerodha.com\/open-account?c=PR4768\" style=\"border-radius:50px;background-color:#e4fa00;color:#0f0027\" rel=\"nofollow\"><strong>Open Zerodha Account Now!<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Dilute_Equity\"><\/span><strong>Dilute Equity<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>There will be more shares outstanding in the market as the corporation issues more shares to shareholders.<\/strong> As a result, stockholders who choose not to take part in the company&#8217;s DRIP will have a smaller ownership stake.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Taxable\"><\/span><strong>Taxable<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>Even though the real cash dividend was reinvested, shares acquired through DRIPs are taxable since they are regarded as income.<\/strong> For the purpose of tax reporting, shareholders must therefore keep records (such as a record of a transaction, cost base, and capital gains or losses). For investors, it can be difficult and time-consuming.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Not_Short-term\"><\/span><strong>Not Short-term<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>Short-term investors should avoid DRIPs, especially if the company pays dividends on a semi-annual or annual basis. <\/strong>The investor has the option to choose to purchase the additional shares immediately on the market rather than wait to get them at the end of six months or a year.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Share_Price\"><\/span><strong>Share Price&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Because shares are automatically purchased,<strong> the investor has no influence over the stock price.<\/strong> Though the stock price is quite high, they can be forced to invest in it due to a lack of options.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Non-Diversifiable\"><\/span><strong>Non-Diversifiable<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>An investor&#8217;s exposure to the company is increased by a DRIP. <strong>The investor&#8217;s portfolio will be increasingly strongly exposed to the company as they purchase additional shares through the DRIP. <\/strong>An investor&#8217;s portfolio may need to be periodically rebalanced as a result of DRIPs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_Should_I_do_DRIP_Investing\"><\/span><strong>How Should I do DRIP Investing?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>Reinvesting dividends is a terrific technique for investors to consistently increase wealth.<\/strong> Investors can automate this procedure with the help of several brokers and businesses, which enables them to purchase more shares (even fractional ones) with each payment. That increases their returns, which over time may accumulate.<\/p>\n\n\n\n<p>Before deciding on a growth or dividend plan, there are a few things to consider. <strong>The first item that must be taken into account is whether a regular income of any kind is anticipated from the mutual fund investment.&nbsp;<\/strong><\/p>\n\n\n\n<p>It is a personal decision, and it depends on whether the investor expects any monthly income or dividends from their mutual fund investment. High dividend-paying debt mutual funds aren&#8217;t always the top-performing mutual funds. So, before making an investment, a number of other things must be taken into account.<\/p>\n\n\n\n<p>Read our article on Mutual Fund Investing to learn more. <a href=\"https:\/\/rakshithpai.com\/mutual-fund-investing\/\"><strong>CLICK HERE!<\/strong><\/a><\/p>\n\n\n\n<figure class=\"wp-block-embed aligncenter is-type-wp-embed is-provider-rakshith-pai wp-block-embed-rakshith-pai\"><blockquote class=\"wp-embedded-content\" data-secret=\"xjNmqHKjeY\"><a href=\"https:\/\/rakshithpai.com\/maximize-mutual-fund-returns\/\">Maximize Your Mutual Fund Investing Returns:<\/a><\/blockquote><iframe class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" style=\"position: absolute; clip: rect(1px, 1px, 1px, 1px);\" title=\"&#8220;Maximize Your Mutual Fund Investing Returns:&#8221; &#8212; \" src=\"https:\/\/rakshithpai.com\/maximize-mutual-fund-returns\/embed\/#?secret=PepF5BEilL#?secret=xjNmqHKjeY\" data-secret=\"xjNmqHKjeY\" width=\"200\" height=\"200\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\"><\/iframe><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Tax_on_DRIP_Investment\"><\/span><strong>Tax on DRIP Investment:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>According to Section 115O, each domestic corporation that declares or distributes dividends must pay DDT at a rate of 15% of the dividend&#8217;s gross amount. As a result, the effective DDT rate is 17.65%* on the dividend amount.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-4 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button is-style-outline\"><a class=\"wp-block-button__link has-text-color has-background\" href=\"https:\/\/zerodha.com\/open-account?c=PR4768\" style=\"border-radius:50px;background-color:#e4fa00;color:#0f0027\" rel=\"nofollow\"><strong>Open Zerodha Account Now!<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<p>However, beginning with the 2020 Annual Budget, the tax on dividends will be paid by the recipient taxpayer. So, in accordance with Section 194, an Indian company may deduct tax at the source (TDS) while making distributions or paying dividends. <strong>The tax rate is 10%, and TDS must be withheld if a dividend in excess of Rs. 5,000 is paid or delivered to a shareholder.<\/strong><\/p>\n\n\n\n<p>DRIPs are immediately reinvested in the same fund&#8217;s units. As a result, the investor receives more units of the same fund, valued at the dividend amount. Although the investor in such a situation does not receive any dividends in hand, they still must pay taxes on them.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>By setting up an automatic reinvestment plan, the majority of investment brokers make it simple for an investor to reinvest all of their profits. Investors can, however, also choose to take part in DRIPs that are provided directly by a dividend-paying corporation.&nbsp;<\/p>\n\n\n\n<p><strong>Since many of these programs are commission-free and let investors purchase fractional shares, they offer advantages similar to those provided by brokers.<\/strong> Additionally, some businesses offer a discount on the going market price when selling shares through their DRIP scheme.<\/p>\n\n\n\n<p><strong>Investors should carefully study the fine print, as not all DRIPs offer these advantages.<\/strong> For instance, some businesses have minimum investment requirements, such as the need to hold a specific percentage of the company&#8217;s stock or a specific amount of money. A service fee and a brokerage commission are additional fees that some companies charge.<\/p>\n\n\n\n<p><strong>Disclaimer:<\/strong> All the information on this website is published in good faith and for general information purposes only.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Also_read\"><\/span><strong>Also read:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><a href=\"https:\/\/rakshithpai.com\/avoid-investment-mistakes\/\" target=\"_blank\" rel=\"noreferrer noopener\">Top 10 Investment Mistakes To Avoid:<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/rakshithpai.com\/focused-investing\/\" target=\"_blank\" rel=\"noreferrer noopener\">Stock Market Distractions! Find the path to Focused Investing:<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/rakshithpai.com\/absolute-pe-model\/\" target=\"_blank\" rel=\"noreferrer noopener\">How to Value Stocks Using Absolute PE Model<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/rakshithpai.com\/earnings-per-share\/\" target=\"_blank\" rel=\"noreferrer noopener\">Earnings Per Share &#8211; Importance, Types &amp; Features:<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/rakshithpai.com\/maximize-mutual-fund-returns\/\" target=\"_blank\" rel=\"noreferrer noopener\">Maximize Your Mutual Fund Investing Returns:<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>What is a Dividend Reinvestment Plan (DRIP)? An investment account known as a &#8220;dividend reinvestment plan&#8221; enables investors to &#8220;roll over&#8221; or reinvest their dividends in order to purchase further shares of the company.&nbsp; The business distributes cash dividends to shareholders from its profits, giving them the option to use those funds to purchase additional [&hellip;]<\/p>\n<div class='heateor_sss_sharing_container heateor_sss_vertical_sharing heateor_sss_bottom_sharing' style='width:44px;right: -10px;top: 100px;background-color: Dark Blue' data-heateor-sss-href='https:\/\/rakshithpai.com\/wp-json\/wp\/v2\/posts\/5872'><div class=\"heateor_sss_sharing_ul\"><a aria-label=\"Facebook\" class=\"heateor_sss_facebook\" href=\"https:\/\/www.facebook.com\/sharer\/sharer.php?u=https%3A%2F%2Frakshithpai.com%2Fwp-json%2Fwp%2Fv2%2Fposts%2F5872\" title=\"Facebook\" rel=\"nofollow noopener\" target=\"_blank\" style=\"font-size:32px!important;box-shadow:none;display:inline-block;vertical-align:middle\"><span 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Everything You Need to Know -<\/title>\n<meta name=\"description\" content=\"An investment account known as a &quot;dividend reinvestment plan&quot; enables investors to &quot;roll over&quot; or reinvest their dividends in order to purchase further shares of the company. 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