Automatic Reinvestment Plan

An investment program in which capital gains or other income received from investments are automatically used for reinvestment purposes. In the case of a mutual fund, for example, capital gains produced by the fund would be used to automatically purchase more shares of the fund, instead of being distributed to the investor as cash.

By utilizing an automatic reinvestment plan, an investor is able to easily make use of their investment gains to produce further gains, taking advantage of compounding. Over a period of years, the added value produced by automatic reinvestment can turn out to be worth a substantial sum.