What is dividend reinvestment? What are the benefits of dividend reinvestment
4hw.com.cn: now people pay more and more attention to investment and financial management. Many people want to find a suitable way of investment and financial management. Dividend investment is also a way of investment. So what does dividend reinvestment mean? What are the benefits of dividends in investment? Let's have a look.
What does dividend reinvestment mean?
Dividend reinvestment refers to that when the fund makes cash dividend, the fund holder directly uses the cash from the dividend to purchase the fund, and turns the dividend into the holding fund unit. For fund managers, there is no cash outflow from dividend reinvestment, so dividend reinvestment usually does not receive subscription fees. Fund managers encourage investors to make additional investment, so there is no charge for reinvestment of dividends. If investor gets cash bonus, want to add investment again, will regard as new subscription, need to pay subscription fee. Therefore, the choice of dividend reinvestment is conducive to reducing the cost of investors. Under the current system, there are two main forms of fund dividend: cash dividend and dividend reinvestment. Cash dividend is to get cash dividend directly and put it in a safe pocket; dividend reinvestment is to reinvest the cash dividend obtained into the fund, similar to "profit rolling", which can not only avoid the subscription fee of reinvestment, but also enjoy the next dividend for the fund share obtained from reinvestment, which can make the fund share increase with the number of dividends.
Benefits of dividend reinvestment
International and domestic data and experience have shown that the choice of dividend reinvestment will obtain higher returns, and the more frequent the fund dividends, the more obvious the difference will be. Take the U.S. stock market as an example. If we invest $10000 in stocks in 1871 and stick to the dividend reinvestment strategy, then by the end of 2003, the value of these dollars will increase to nearly 80 million after the inflation factor is eliminated! If there is no reinvestment of dividends, the cumulative value will be less than $2.5 million (selected from investor's future). Taking Huaxia return as an example, the fund was established in September 2003. It is characterized by point-to-point dividend. By June 20 this year, the total return on cash dividend is 304.59%, and the total return on reinvestment is 432.22%, with a difference of nearly 130%! That is to say, at the time of initial issuance, investing 10000 yuan to buy Chinese returns, and choosing dividend reinvestment will generate 13000 yuan more income than choosing cash dividend, and the longer the time is, the greater the difference will be.
At present, China's law stipulates that the default mode of fund dividend is cash dividend. Investors can change the dividend mode to dividend reinvestment through sales agencies to obtain greater returns. There are two basic ways for investors to make profits when they invest in funds. One is cash dividend; the other is dividend reinvestment. But cash dividend can be said to be a necessary choice for investors. Reinvestment of dividends is unrestricted. Investors can choose flexibly according to market environment and individual investment demand.
Necessary conditions for dividend reinvestment
Bull market environment is the best condition for investors to choose dividend reinvestment.
The investors can keep more fund shares in the bull market, so as to share the capital appreciation brought by the bull market. It can be said that there is no doubt that the bull market environment plays a role in the growth of fund net worth.
Effective measures to reduce the cost of purchasing funds.
Dividend reinvestment does not require investors to pay subscription fee again, and saves the time cost of investors, so that investors can make better use of favorable market environment for investment. It is a form of reinvestment that saves time, cost and effort.
It can play an effective role in the development of 'idle' funds.
After investors choose cash dividend, if there is no certain investment plan and arrangement in the short term, it will often lead to the "idle" cash dividend distribution, thus losing its due value-added effect. Instead of leaving funds' idle 'in the account, it is better to reinvest dividends to better share the benefits of capital appreciation. Therefore, dividend reinvestment is a kind of mandatory investment for investors' idle money, which is a positive and effective investment strategy should be used.
For long-term investment, reinvestment of dividend should be the first choice.
The purpose of short-term investment is to achieve short-term investment goals and plans by winning short-term fund net value spread income or cash dividends. The long-term investment is for better capital accumulation, so that the funds play a 'compound interest' effect. And dividend reinvestment has become a long-term choice of investors. Especially for the long-term funds needed for children's education and pension security, we should make use of the way of reinvestment to increase the speed of capital appreciation.
Fund with dividend expectation is preferred.
Different fund products have different risk return characteristics. And fund managers will also adopt different investment strategies and income distribution methods. Especially in the formulation of dividend policy, there are also great differences. When making plans for reinvestment of dividends, investors shall select funds with strong expectation of dividends. And the selected fund can maintain its investment style and growth consistent with historical performance. Investors can use historical performance as a reference for follow-up capital investment, and use dividend reinvestment to achieve capital appreciation. Advantages fund managers encourage investors to make additional investment, so there is no charge for reinvestment of dividends. If investor gets cash bonus, want to add investment again, will regard as new subscription, need to pay subscription fee. Therefore, the choice of dividend reinvestment is conducive to reducing the cost of investors. At the same time, long-term investment in open-end funds can enjoy the compound interest growth effect of fund investment appreciation if the dividend reinvestment method is selected. For example, if the open-end fund dividends 5% every year, choose dividend reinvestment, then 10 years later the capital will increase in value by 62.89%; and if the same income situation, choose cash dividend method, then 10 years later the capital will only increase in value by 50%, and the income is less by 12.89%. If the investment time is longer, the difference is greater. PK cash dividend for funds mainly invested in securities, fund dividend mainly includes cash dividend and dividend reinvestment, and investors can choose the way of dividend. For example, if you hold 1 million fund shares of a fund, you will now receive a dividend of 0.05 yuan per fund share.
If you choose the cash dividend method, you can get a cash dividend of 50000 yuan; if you choose the dividend reinvestment method, and the net value of the fund shares on the dividend base date is 1.25 yuan, then you can share 50000 & pide; 1.25 = 40000 fund shares, which is the fund shares you hold become 1.04 million.
Statistics tell us that if in the long run, the choice of different dividend methods will lead to a huge difference in the final income.