Resource: What you Need to Know About Your Distribution Reinvestment Program (DRIP)
- Perron Team
- 4 days ago
- 3 min read
Building wealth doesn't have to be complicated. In our resource series, we'll break down everything you need to know about investment accounts and wealth management in simple, straightforward terms. Whether you're just getting started or looking to increase your knowledge, we're here to help you make smart decisions about your money with confidence.
What is a distribution?
In investments, a distribution is a payment from a fund to its investors, typically from earnings like interest, dividends, or capital gains. These distributions can be paid in cash or reinvested to purchase more fund units. They are common for mutual funds and ETFs, and their components (e.g., dividends, interest) are taxed at the investor's marginal rate in a non-registered account.
Distributions come from 4 sources:
Dividends: paid by the individual companies the funds invest in. Many companies use dividends to distribute corporate profits.
Interest: Income the fund earns on any cash it holds for liquidity or tactical reasons or bond interest for funds that hold fixed income investments.
Return of Capital (ROC): return on your original investment. This is not profit, it is returning your own money back to you.
Capital Gains: When the fund sells an investment for more than it paid for it, the profit is called a capital gain. Selling at a loss results in a realized loss. Gains and losses within the fund are combined (netted out).
What is a DRIP?
A DRIP (distribution reinvestment program) systematically reinvests distributions. The DRIP uses your distribution to buy more units instead of paying cash, which raises your cost base by the distribution amount because it’s treated as if you received cash and immediately reinvested it. At the same time, the fund’s NAV (price per unit) usually drops by the amount of the distribution since money is leaving the fund. Even though the price drops, you end up with more units, so your total investment value stays the same right after the distribution. Over time, reinvesting distributions helps you grow your holdings faster.
Benefits
There are benefits to enrolling in DRIP such as compounding, dollar-cost averaging and convenience.
Compounding: A DRIP automatically purchases additional units in the funds. The extra units can generate their own future distributions. This helps your investment grow over time without adding new money.
Dollar Cost Averaging: A DRIP gradually purchases additional units over time. Investing steadily over time can help smooth out market volatility as you buy at different prices levels.
Convenience: Systematically reinvests without having to take any action on your side or speak with your advisor. It is a hands-off easy way to grow your investments.
Kipling Funds*
Cumberland offers the Kipling Global Enhanced Dividend Fund and the Kipling Global Enhanced Growth funds to investors. Both pay regular quarterly distributions, as well as occasional special distributions. When you own the Kipling funds, you have the opportunity to enroll in a Distribution Reinvestment Program (DRIP) program.
If you have questions don’t hesitate to reach out to your team at CPWM to discuss how a DRIP can help you reach your financial goals.
*The Kipling Funds are owned and administered by NCM Asset Management Ltd. (“NCM”), the Investment Fund Manager. Cumberland Investment Counsel Inc. (“CIC”) is the portfolio manager of these funds. Cumberland Private Wealth Management Inc., CIC and NCM are affiliated companies under the common ownership of Cumberland Partners Limited