A Dividend Reinvestment Plan, typically abbreviated as DRIP, is a shrewd investment strategy in which cash dividends paid by a corporation are reinvested in acquiring more stocks of the same entity. With this plan, an investor can exponentially increase their holding in the company as the dividends they receive are used to purchase additional shares or fractions of shares, invariably enhancing their portfolio. The system helps the investor build their shareholding in the company over a long period automatically.

Investing through a Dividend Reinvestment Plan has several advantages. For one, it permits compounding - the growth of investment value as dividends earned on the principal are reinvested and, in turn, earn dividends. Moreover, DRIPs usually allow the purchase of fractional shares, which are generally not available for direct purchase in the market. This feature enables the complete reinvestment of dividends, stimulating capital appreciation.

To track Dividends Reinvestment Plan, the investor needs to monitor their investment consistently. This involves keeping tabs on the calendar dates when the dividends are paid and the purchase of additional shares is executed. For instance, if a company declares a dividend of Rs. 5 per share and an investor owns 1000 shares, they will receive dividends of Rs. 5000. If the share's market price is Rs. 200, the dividends will be used to purchase 25 additional shares (or fractional shares, as per the company's policy) for the investor through the DRIP.

It's essential that the investor maintains clear records of these transactions. Any change in the quantity of shares or their value will affect future calculations for capital gains or losses. Therefore, accurate documentation is crucial to avoid surprises during tax assessment or while selling the shares.

The investor also needs to review the company's financial performance regularly. A consistent dip in dividend payouts or a regular decline in share price could indicate financial instability, and the investor may need to reconsider their investment in such cases.

However, before opting for Dividend Reinvestment Plan, an investor should weigh in all the factors. The investor must be prepared for periods of market volatility. Although such periods may seem discouraging, a long-term perspective could show profitable returns owing to the power of compounding. An important point to remember is that investing in the financial market entails risks, and hence the investor should consider their risk appetite while deciding their investment strategies.

Note: This article is provided for informational purposes only and not intended as any form of financial advice. Investors should thoroughly research and consider all pros and cons before making any decisions about trading in the Indian financial market.

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