When you invest in an Income fund that pays a monthly dividend. If I reinvest that money is it counted as growth or is the movement of the value of the fund the only thing that is counted as growth or loss.
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3"counted as growth" in what context? There are many ways to measure "growth".– D StanleyCommented Jul 31 at 13:50
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Are you asking for tax reasons? If so, you should mention your country as tax laws vary by jurisdiction.– Chris W. ReaCommented Jul 31 at 22:59
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2 Answers
Traditionally when one says growth, they mean by an increase in equity price. That may come from a stock split, which may decrease the actual price but increase the equity held by an investor. (Example: Stock AAA is trading at $50/share and does a 2:1 stock split. After the split AAA trades at $30 a share. Effectively the investor has increased their equity from $50/share to $60. )
Monies received via interest or dividends are considered income.
You may have heard mutual funds classified as growth, growth or income, or income types. The former would be looking for investments that will only increase in value, the later only those that pay income without concern about increasing in value. The middle a combination of the two.
So if you have a fund that pays income, but you reinvest that income it is not growth. But by your own choice, you are turning that income into growth.
A dividend represents, theoretically, a cash payout from the company's earnings. Hopefully paying that dividend does not stimy the operations of the company, meaning it represents something like "excess cash" that the business wouldn't have been able to effectively use to improve operations. When to pay dividends, and how much, is one of the primary decisions that the company's Board of Directors should determine, based on their understanding of the desires of the shareholders and the capacity of the company.
The dividend itself is not "growth", the 'growth' already happened as the (profitable) business continued to earn money. If you continue taking in dividends from your investments and spend them on living expenses, then you have effectively taken those earnings and "uninvested" them. If you reinvest that money back into the company, or another investment, (or, if the company doesn't pay out a dividend in the first place), then it allows your initial growth to continue compounding.
answered Jul 31 at 15:03
