Castle Blaney

Our Finance Blogs

A beginner’s guide to Dividend Reinvestment Plan (DRIP)

Investment is the primary goal of financial management. Most people often wish to plan a budget only to invest money in the share market or save for old age. Indeed, there are ample investment plans, and when you start searching for suitable plans, you need to know the benefits of everyone. 

Only after that an investor can make a profit and fulfil his goals of investing money. Undoubtedly, when you wish to invest in market-linked plans, you need to keep the fund for the lock-in period. However, if you are willing to save money to buy a car, it is better not to wait long. 

There is an excellent opportunity to borrow an auto loan that will help you in-car finance with bad credit scores in Ireland. Many money lending companies are providing car loans to people with a minimum rate of interest. However, if you are still looking for some reinvestment plan to arrange the down-payment amount, there is no DRIP. 

What is DRIP?

Dividend Reinvestment Plan involves the derived fund from existing investment to another new share or equity or debt bonds. Generally, it is like a standing instruction that helps to reinvest money automatically within another market-linked plan. As a result, an investor can earn compound interest easily. 

 This is a growth plan which ensures a good return. So if you are thinking about enhancing the amount of return within the same timespan, then DRIP is the ultimate investment plan. Besides, its simplified process of investment makes it popular among investors. 

 Moreover, DRIP investment is relatively cheap from other plans, so nothing is to think about the charges. However, to enjoy the benefits of auto reinvestment, all you need is an enrolment under a specific DRIP. There you will meet another broker who will select shares for reinvestment. 

 If you think that DRIP may include entirely out of the box investment, then it is wrong. Instead, companies who come under the list of share markets only can offer this benefit. 

Ways through which DRIP operates

Generally, DRIP is a reinvestment plan, so it has some differences from regular share market operation. Basically, such a plan works upon only the dividend amount and not the principal amount. For this reason, there is no risk in investing in DRIP plans. 

For instance, supposes you have 400 shares in your portfolio. From them, you may get 1 pound as a dividend per month. If you enrol yourself for DRIP, the broker will use that extra fund to buy another share. 

So, 400 Euros is automatically used in new shares as a form of investment. Therefore, you will now get 400 euros with additional income from those newly invested shares. In this way, your principal amount will get good growth.  

On this note, there comes a new type of share known as a fractional share. 

  • Fractional shares: The main idea of such a share is what it suggests as per the name. It is a part of a whole share that serves essential benefits to an investor. In this way, one can enhance the limit of holdings within the portfolio. 

So, if you have enabled DRIP in your portfolio, it becomes easy to buy extra shares by investing the same amount of money. If you earn 400 pounds, then you can buy a good many shares with that amount.

What are the advantages of DRIP?

Every single thing has its pros and cons. Similarly, this specific reinvestment plan also has some benefits. Some of them include, 

  • Cost-saving option of investment – While everyone always looks for a cost-saving investment, DRIP is perfect for them. An investor needs not to spend extra charges as the brokerage fee, shareholding fees and so on. Only because the amount is automatically reinvested, so there is no need to pay the brokerage charge. 
  • Proper usage of the fund without wasting time – The dividend earned from the investment is automatically utilised for new shares, so there is no loss of interest. The only reason for preferring DRIP is quick to process. Only because of this do investors find it perfect for reinvestment. 
  • More holdings will strengthen the portfolio – Applying for DRIP hints at more than existing shares. One can easily enhance the number of holdings by utilising this plan. More shares will ensure more holdings. In this way, you can quickly strengthen your existing portfolio and earn as much as you want. 

So, what are you thinking about? If you have still not explored the Dividend Reinvestment Plans, then start exploring today. It will help to enhance the growth of the portfolio and will help to earn more. Thus, you can quickly improve the limits of financial goals too. 

Leave a Reply

Your email address will not be published.