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Finance GlossaryDividend Reinvestment Plan (DRIP)
Dividend Reinvestment Plan (DRIP)
Definition of Dividend Reinvestment Plan (DRIP)
A Dividend Reinvestment Plan is a feature where an investor can reinvest the dividends they earn to buy additional shares or units of a mutual fund, either fractional or whole.
Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.
Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.
Related Terms
Delivery Date
The delivery date of a cash or derivative contract refers to the final day and time on which the underlying asset should be delivered to the contract holder to fulfil the terms and obligations of the contract.
Securities Lending
Securities Lending is a process through which investors can lend their shares to borrowers, usually for short selling. In return, they receive interest or fees. The lender continues to be the owner of the assets. The borrower needs to return the securities later. Securities lending helps in improving liquidity in the market. Long-term investors can also earn extra income on holdings that remain idle for a while.
Paper Profit/Loss
Paper profit or loss ( Unrealised profit or loss) is the profit or loss on an investment that has not been converted into actual cash. Paper profit occurs when the current market value of a security is higher than its purchase price while when the current market value of a security is less than its purchase price, it is paper loss. The profit or loss is only realised when the investor sells the security, thus it is also called paper trading and virtual trading. Indian tax laws don't tax profits on paper until realised through sale.
Alpha
An Alpha indicates the measure by which a stock or portfolio has managed to outperform a benchmark like an index of shares.
A positive Alpha means that the security or portfolio is beating the market while a negative Alpha means that it is lagging.
Alpha can also be used to measure the competence of a fund manager and their strategies.
A positive Alpha means that the security or portfolio is beating the market while a negative Alpha means that it is lagging.
Alpha can also be used to measure the competence of a fund manager and their strategies.
Dividend Stripping
Dividend stripping is a strategy of buying a company’s stock days before it announces a dividend and then selling the same stock at a lower price once the current holder is entitled to get the dividend previously announced.
The resulting loss in capital gains is generally offset by the profits from dividends. Dividend stripping was once non-taxable, which made the strategy lucrative for smart investors. However, dividends in India are now subject to tax.
The resulting loss in capital gains is generally offset by the profits from dividends. Dividend stripping was once non-taxable, which made the strategy lucrative for smart investors. However, dividends in India are now subject to tax.
Broker
A broker is an intermediary between a securities exchange and investors. Only registered entities can place trades on a securities exchange. These members can be individuals or firms known as stockbrokers.
That’s why investors must go through a broker when they want to trade or invest in stocks, ETFs, futures, options, and others.
That’s why investors must go through a broker when they want to trade or invest in stocks, ETFs, futures, options, and others.
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