How do I start if I want to invest in some DRIP funds?

Answer 1

ShareBuilder.com

dripinvestor.com

stockmarket-direct.com

moneypaper.com

Here's a good article:


Beverly Goodman
DRIPs Don't Hold Much Water for Most Investors
By Beverly Goodman
Senior Writer
07/21/2003 07:06 AM EDT
URL: http://www.thestreet.com/funds/beverlygoodman/10101826.html

Beware of new ideas from the mutual fund industry.
Whichever way the market shifts, there's a new product designed just to take advantage of it. Bear funds, principal protection funds, you name it. Now, enter the DRIP fund.
Dividend reinvestment plans, or DRIPs, allow investors to accumulate shares in a company over time by automatically reinvesting their dividends. Many companies offer no- or low-fee DRIPs, some companies also discount the stock price. The premise is sound -- investors are encouraged to hold onto stocks for the long term, and dollar-cost-average all new shares purchased.
So a fund consisting entirely of DRIPs should make sense, right?
Not quite.
The idea isn't a terrible one in principle, and the creators of MP 63 certainly aren't quite as mercenary as, say, some investment banks or larger fund companies looking to prey on investor fears with get-rich-quick products. The fund, launched by the backers of Moneypaper, an investor education newsletter that promotes DRIP investing. Moneypaper, edited by Vita Nelson (who co-manages MP 63 with David Fish), launched a fund based on its 63-company index (hence the name of the fund) in 1999.
"The index, and consequently, the fund, is composed of a diverse mix of industry leaders," Fish says. "And one of the greatest strengths of these companies is that two-thirds of them have raised their dividend annually for at least 10 years. Some -- like Colgate-Palmolive (CL:NYSE - news - commentary) , Coke (KO:NYSE - news - commentary) and Johnson & Johnson (JNJ:NYSE - news - commentary) -- have increased their dividends every year for 41 years."
The fund's fees are in line with the average -- 1.25% -- and it carries a redemption fee of 2% for sales within three years, 1% for sales within five years.
But while redemption fees discourage short-term investors -- a noble intent -- and the management fees meet the industry average, the fund still may not make much sense for most investors.
First of all, 63 companies is still a fairly concentrated portfolio. And since all are in the S&P 500, why not just buy an index fund? Most funds automatically reinvest any dividends as well.
"Products like this that promote adherence to a buy-and-hold strategy are generally positive," says Morningstar analyst Kunal Kapoor. "But an index fund would compare more favorably, so if you can get a S&P 500 index fund, why wouldn't you do that?"
Indeed -- especially once you've looked at the numbers. The yield on the DRIP fund is 0.7%. The yield on Vanguard's S&P 500 index is 1.52%. That's a pretty big difference.
Another significant difference can be found in the fees -- while 1.25% may not be out of line for an actively managed fund, it's quite high for an index fund. The expense ratio on Vanguard's S&P 500 index is 0.18%.
Now, the DRIP fund is tiny -- just $22 million in assets -- and Fish acknowledges that that keeps the fees slightly on the high side. "Once we hit $25 million, we'll see a reasonable drop-off in the fees [that are charged by the administrator] ," Fish says. "We've already switched administrators to lower fees."
The fund also only buys into inexpensive DRIPs, and has kicked out companies that institute higher cost plans.
But while the intent may be genuine, most investors would still do best elsewhere -- whether they're looking to capitalize on the new lower tax rate on dividends or simply have a more organized portfolio.
"There's so much product created to take advantage of investor ignorance," says Larry Swedroe, director of research for Buckingham Asset Management. "I don't see the value in any of these kinds of products. Buy an S&P index fund."

Answer 2

Talk to a broker or a financial advisor