s-faqs">Frequently asked questions (FAQs)

<h3 id="which-is-better-for-long-term

Which is better for long-term investors, DRIPs or taking cash dividends?

A dividend reinvestment plan is more suitable for investors who are interested in long-term wealth generation. It enables investors to increase their holdings of shares through reinvesting dividends, thus benefiting from compounding returns over a long period. On the other hand, cash dividends are more appropriate for investors like retirees who need regular income.

If dividends are reinvested through a DRIP, are they considered for taxation?

The answer is a 'yes', as dividends are liable to taxation, even if the dividends are reinvested instead of being received as cash. Investors then have to pay the tax on dividend income, depending on their relevant tax slab. Therefore, this is an important factor for investors to consider when they are availing the dividend reinvestment plan.

Can I stop or make changes in my dividend reinvestment program anytime?

Yes, most dividend reinvestment plans offer investors flexibility. An investor could initiate or stop dividend reinvestment plans when they want, according to their evolving financial goals.

Do dividend reinvestment plans offer fractional share purchases?

Yes, one of the key features of the dividend reinvestment plans is that they allow the buying of fractional shares. This ensures that the whole dividend amount is reinvested, even if it is not enough at the current market price to buy a whole share.

Who should avoid dividend reinvestment plans?

Dividend reinvestment plans are not suitable for those investors who only rely on dividend income to meet their daily expenses or require regular cash flow. This plan is also not suitable for investors who would want to achieve diversification with their dividend earnings rather than investing the dividend income in the same security.