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In the portfolio of mutual funds, which is a stock paying dividend, dividends through the fund participants? When the fund to declare dividends, the investor has a choice: pay dividends or reinvest dividends to purchase additional shares of the fund. There are many reasons to reinvest the dividends:

Creating number of shares

For dividend investors, the goal is to increase the number of shares over time. Each share you buy, is credited with a dividend. As these dividends reinvested, the balance of your share increases. Mutual funds are dividend reinvestment easy.

No more costs to reinvest in mutual funds.

The dividend declared pay for additional shares. Even if you do not want to make additional payments to the share capital that you continue to produce dividends.

Count dollar cost average

When you select automatically reinvest the dividends, the fund to buy stocks on a regular basis monthly, quarterly or half, depending on the dividends declared. The share prices of these intervals vary, sometimes more, sometimes less. Over time, your shares are held by the average cost basis. Buy cheaper you get more shares, while the most expensive purchases to give you a number of shares – assuming a constant dividend. Even though the average is a useful tool, the method does not offer a guaranteed income.

Mostly, equity funds are intended for long-term investment. Building a portfolio takes time to value. And note the amount of dividend income payments that you want to take time. Most of the people, the dividends are a good source of retirement income. Since you might not need income now, why not reinvest dividends to buy more shares? As with all investments is the market risk. Shares purchased with your out-of-pocket dollar will increase with dividends. Dividends are reinvested to buy more shares, which will also pay dividends. There will be generations of shares purchased by dividends – and dividends on such shares. There is a constant cycle of purchases and proceeds from the initial investment. Moreover, apart from the return of the share price may increase in value over time.