Use Automatic Reinvestment For Mutual Funds

Automatic reinvestment is a tool used by mutual funds that allows investors to purchase additional shares in the fund using their dividends or capital gains distributions. It's similar to an automatic deposit into your checking account. In this case, money comes in the form of dividends or capital gains distributions, which you receive when the mutual fund does well. Additionally, instead of sending you the earned money, your fund manager reinvests it into your mutual fund. This gives you more shares of your fund and helps avoid excess taxes.

Learn to Use Automatic Reinvestment for Mutual Funds

Open your mutual fund prospectus and find the section about automatic reinvestment options.

Realize that your mutual fund may use automatic reinvestment unless you explicitly state otherwise. Read your prospectus to see which tactic your mutual fund uses.

Follow the instructions in your prospectus if you have to sign up to use automatic reinvestment. If you cannot find instructions, call your mutual fund manager and ask him what you need to do.

Discuss any tax liabilities or gains with your financial advisor or fund manager. Automatic reinvestment may carry additional benefits or tax losses if you are buying and selling other mutual funds at the same time as you are reinvesting.