Chartered Retirement Planning Counselor (CRPC) 2025 – 400 Free Practice Questions to Pass the Exam

Dividend reinvestment plans (DRIPs) are popular among investors primarily because they allow dividends to be automatically reinvested to purchase additional shares of the underlying stock, often without incurring commission fees. This feature supports the compound growth of an investor's holdings, enabling them to accumulate more shares over time, which can enhance total returns in a rising market.

The appeal of DRIPs lies not only in automatic reinvestment but also in the potential for purchasing additional shares at discounted rates. Some plans offer shares at a reduced price compared to the market value, maximizing the investor's ability to acquire more equity at a lower cost. This aspect of utilizing dividends for discounted stock purchases aligns with long-term investment strategies focused on building wealth through reinvestment.

While it is crucial to understand this context, it is worth noting that claims regarding guarantees of high returns or complete tax avoidance do not accurately reflect the nature of DRIPs. Returns on investment through these plans can vary, and taxes on dividends reinvested are typically deferred until the shares are sold, but they do not avoid taxes entirely. Therefore, the features of DRIPs that resonate with investors revolve mainly around automatic reinvestment and the capability to purchase shares at a discount.