Blue Chip Funds: A Blessing for Retirement or Children’s Future
People often hear that investing in blue chip companies can help them earn money. It is advisable to invest in blue chip companies to get good returns and also minimize market risks.
In reality, blue chip companies are large-scale entities and financially robust. They have a vast distribution network.
These companies usually deal with high-quality products and services, which not only affects market fluctuations but also reduces the impact of market downturns. They can perform well even in tough market conditions, maintaining stability in their stock.
Today, we will learn about blue chip funds in mutual funds and discuss their benefits and drawbacks.
Blue chip funds do not have a specific category but are quite popular.
Blue chip funds are essentially large-cap mutual funds. According to SEBI, there is no separate category for blue chip funds. Some large-cap mutual funds include blue chip in their names.
Some examples include Axis Bluechip Fund, ICICI Prudential Bluechip Fund, SBI Bluechip Fund, Kotak Bluechip Fund, or Franklin Bluechip Fund. Furthermore, there are Principal Emerging Bluechip Fund in the mid and large-cap segments.
Significant investments are made in these large companies.
Investors in blue chip funds need to allocate at least 80% of their investments to the top 100 companies in terms of market capitalization.
Who should invest in blue chip funds?
Investors who cannot afford high risks are advised to invest in blue chip funds. Experts suggest investing in these plans, keeping a time horizon of at least 5 to 7 years in mind.
Market volatility is lower in comparison to others.
Stocks of every blue chip company are considered the safest and most reliable investment option. Therefore, during market fluctuations, investors prefer them due to their stability.
The benefits of blue chip funds
The primary goal of every investor is to build wealth for the future. These investments contribute significantly to creating large funds. Due to being equity-oriented, blue chip funds help fulfill this goal entirely. Additionally, financial stability is also achieved.
By investing in blue chip funds, one can fulfill various investment goals such as retirement planning, children’s future, and more.
Blue chip funds work in what manner?
Blue chip funds diversify resources into equities of businesses listed in the BSE-100 index, which represent companies with similar market capitalizations. This diversification helps in acquiring better returns.
This fund can also invest in bonds and debentures to diversify the portfolio. The value of blue chip funds tends to be higher in terms of returns.
Blue Chip Funds Dividend Yield
Blue chip funds generate increased income in the form of dividends. Blue chip companies are well-established and provide secure investment avenues. They ensure a certain income and stable returns.
Creditworthiness
Blue chip companies can easily fulfill their financial obligations for repaying debts. Therefore, shares issued by these companies are highly creditworthy.
Reduced Risk Factors
Blue-chip companies issuing shares in the financial market exhibit lower risk factors in financial operations.
Opportunity for Increased Investment
Blue chip funds are suitable for long-term investments. Investing in these shares or funds helps achieve financial goals efficiently.
Prospects for Growth
Blue chip companies have the potential for maximum growth. Thus, the stable timeline of growth illustrates the characteristic of blue chip shares.
Tax Benefits
Under section 80-C of income tax laws, the tax rate on long-term goals is 15%. The tax rate on profits exceeding 1 lakh is 10%.
Profitable in Bullish Trends
Investing in blue chip funds can significantly enhance your long-term wealth. Strengthening the portfolio with shares from robustly performing companies increases your capability. Moreover, it provides stability amid volatile stock market conditions.
Assistance in Achieving Financial Goals
Investing in blue chip funds directly assists in achieving long-term financial goals.
Hedge Against Market Fluctuations
Blue chip companies’ competitive advantages are compared with major stock markets, and investing in long-term profits helps hedge against market fluctuations. This long-term investment assists in countering market volatility.
Flowing Out
Whenever you demand an exit from the financial module, you can redeem blue chip funds. You can also apply for loans against blue chip fund units.
How are Blue Chip Funds Different from Other Mutual Funds?
Blue chip funds invest in large-cap shares of financially strong and robust companies, while other mutual funds may invest in mid-cap or small-cap shares. Blue chip funds generally carry lower risks and offer stable returns.
However, only registered asset management companies (AMCs) can invest in these funds.
Investigate Before Investing in Blue Chip Funds
Before investing in blue chip companies, it’s crucial to examine the track record of the asset management company (AMC) managing the fund. Controlling the returns of significant investors is also crucial.
Finally, investors should seek blue chip mutual funds that have consistently outperformed their benchmark indices and competitors over the last three to five years. Evaluating their performance will assist in determining whether they are suitable for investors’ portfolios.
