Blue Chip Funds: All you need to Know
The game of poker has something called the “blue chip”. It is the highest-rated, most expensive piece in the entire game, and is significantly more valuable than white and red chips. The term has slowly found use in a host of different areas, including the securities market. Read on as we go deeper into understanding what “blue chip” funds exactly mean in the investing world.
What is a Blue Chip Fund?
When brokers and asset management companies talk about “blue chip” funds, what they essentially mean is that they’ll be investing in well-established companies. Like poker, the securities market also regards blue chips as the most valuable asset. Blue chip funds usually invest in the stocks of companies that have a proven track record, have a sizable market share, and have been in the industry for decades.
The stocks of large caps, which are companies that have a market cap of ₹20,000 crores or more, can be regarded as blue chips.
Features of Blue Chip Fund
Here are some of the best features of these funds:
- Regular dividends to investors as the companies that the fund invests in have a steady growth rate.
- Superior cash flows and performance as companies have a proven track record.
- Able to tide over market volatility.
- All the companies are run by experienced executives who are well-versed with the nitty-gritty of the market.
What are the advantages of Blue Chip funds?
Investing in well-established names helps in more ways than one. The top benefits of blue chip funds are:
- Offers financial stability
Investment in blue chip funds brings great financial stability as all the companies that the fund invests in are regularly profitable. So the money keeps growing at a steady rate, which helps investors move towards financial independence. This is extremely important for retail investors.
- Is secure
While all mutual fund schemes are safe at a certain level, blue chip funds add a further layer of security. This is because the fund invests in large-cap companies that’ve been in the industry for decades or more. So these firms have a proven brand identity and clear financials, which is more than enough evidence for any investor that his/her money is safe.
- Meets financial goals
Blue chip funds have historically been able to generate more than decent returns. Investors’ financial goals are, thus, met on a regular basis, which is not the case with every mutual fund scheme. The more the investment, the higher the returns from a blue chip fund will be.
- Easy to withdraw funds
Blue chip funds allow investors to immediately liquidate their investments. It’s a useful feature that proves extremely valuable in an emergency situation. Since the fund uses compounding to multiply the money, the investor will not suffer any losses even if he/she withdraws prematurely.
How do Blue Chip Funds work?
Blue chip funds function the same way as most mutual fund schemes. The fund invests in diverse stocks of companies that have a market cap of ₹20,000 crores or more. By doing this, the blue chip fund leverages the growth of these companies to deliver handsome returns to investors. Some of the top blue chip funds are:
- SBI Bluechip fund
- HSBC Large Cap Equity Fund
- Aditya Birla Sun Life Frontline Equity Fund
- Sundaram Select Focus Fund-Regular Plan
Parting Thoughts
Non-financial enthusiasts believe that they should only trade in stocks, but that’s not the truth. There is a list of opportunities waiting to be seized by all knowledgeable investors. Blue-chip funds are one of the categories where you can make your investment.
As stated earlier, the blue chip funds are equivalent to large-cap mutual funds. But whether or not you must invest, or what aspects should be considered when investing in these funds, is another dilemma.
There are plenty of Blue Chip funds in India known for their performance and growth rate. So, risk-averse investors who are looking for a steady income and a dividend on their investments should start investing in Blue Chip Funds as it is a good investment strategy.