Capacitors have been installed in distribution systems for improving power factor, improving the voltage profile, increasing the power flow through the transformers and cables and reduction of power losses. A lot of research has been done in this regard. In this work, we propose to install capacitors in a future smart grid where Demand Side Management (DSM) can be utilized as a resource in system planning. With DSM in action, system planners need not take into account the peak load, but a lesser fraction of the same, reducing the costs involved. In this way, we can defer the investments for later. There will be reduced power losses and a better voltage profile in a DSM enabled smart grid and placing capacitors in such a grid will reduce the costs incurred. Reliability evaluation considering reactive power source failures is also performed in the normal system and the one where DSM is in operation. We take a 10 bus radial distribution system and see that DSM reduces the capacitor placement cost and also improves system reliability. © 2017 IEEE.