Automatic Reinvestment Plan

Automatic reinvestment plan - An automatic reinvestment plan is a reinvestment program where all capital gains or other income is used for reinvestment purposes. In terms of mutual funds, what would happen is that all capital gains received by the fund would be reinvested to buy more shares, instead of the investor taking the cash. The investor will use an automatic reinvestment plan to generate the capital needed to buy more shares and this is a relatively easy method because the investor does not have to go out of pocket to do this. At the same time the investor takes advantage of compounding and after a while the investor has accumulated a substantial investment.