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Cumulative Investment Plan (CIP)

By Fateen Tahseen Alam

Analyst

EDGE AMC Limited

Posted on: 26 Dec, 2023

Last Updated: 13 August, 2026

When your mutual fund declares a dividend, you're usually given a choice: take it as cash, or reinvest it. That second option is called a Cumulative Investment Plan (CIP) — and while it sounds like a minor administrative setting, the choice you make here can meaningfully affect how much your investment grows over time. At EDGE Asset Management Limited (EDGE AMC), we think it's worth understanding exactly what CIP does before you decide which option fits your goals.

What Is a Cumulative Investment Plan (CIP)?

A Cumulative Investment Plan (CIP) is a dividend reinvestment facility: instead of receiving your mutual fund dividend as cash, you elect to have it automatically used to buy additional units in the fund.

Why CIP Matters More Than It Sounds

Left as cash, a dividend is a one-time payment that stops compounding the moment it's paid out.

Reinvested through CIP, that same dividend keeps working: it buys more units, which themselves may earn further dividends and NAV appreciation, and so on. Over a long holding period, this compounding effect on reinvested dividends can be a meaningful share of an investor's total return — not a minor administrative convenience.

This is the same underlying mechanic that makes a Systematic Investment Plan (SIP) grow the way it does over time: small, regular additions to your investment, left alone to compound, tend to add up to more than most people initially expect. 

Choosing between CIP and Cash Dividends

CIP tends to make the most sense for investors with a long-term wealth-building goal who don't need regular income from their holdings right now. If you're years away from needing the money, there's little reason to take dividends as cash and then manually reinvest them yourself. CIP does it automatically, without the hassle or transaction cost of doing it by hand. You can also choose CIP at the time of investment and switch to cash dividends later per your needs. CIP is not an irreversible decision. 

Investors who rely on their mutual fund holdings for actual income such as retirees drawing down savings are better served by cash dividends since a cash payout provides a payment without requiring a unit sale. However, dividend income can be irregular, since disbursal depends on the profitability of the fund in a given period. 

To learn more about how investors earn returns from mutual funds, click here. 

Frequently Asked Questions About CIP

Q: Does choosing CIP cost anything extra?

A: Reinvesting through CIP generally avoids the transaction cost and friction of manually receiving a dividend and reinvesting it yourself. Specific charges, if any, are disclosed in the fund's prospectus, so it's worth checking the details for your particular fund.

You can find the prospectuses, among other fund related documents, on each of the EDGE funds' respective pages. 

Q: Do I pay tax on dividends I reinvest through CIP?

A: Reinvested dividends are still a distribution from the fund and are typically treated the same as a cash dividend for tax purposes, even though you never receive the cash directly. The applicable tax is deducted from dividends before they are reinvested through CIP. Check current tax rules or consult a tax advisor for your specific situation.

Q: Can I switch between CIP and cash dividends partway through my investment?

A: Yes. CIP is typically elected at the time of investment but can be changed later as your income needs change — for example, moving from CIP to cash dividends when you retire.

Q: Is CIP only available for certain types of mutual funds?

A: Availability can vary by fund, so it's worth checking whether your specific fund offers a CIP option and how to elect it. Details are typically outlined in the fund's prospectus.

Q: How is CIP different from a Systematic Investment Plan (SIP)?

A: A SIP is about how you put money into a fund — fixed, recurring contributions. CIP is about what happens to the money the fund pays back out to you — reinvesting dividends instead of taking them as cash. 

Links

• What is a mutual fund
• Systematic Investment Plan (SIP)
• EDGE AMC Mutual Fund Guide
• How does a mutual fund work
• How the mutual fund structure protects investors