When you begin reading about mutual funds, you have no doubt read one term many times, which is Bluechip funds. They are discussed by many as being safe, reliable, and long-lasting investors. However, beginner learners tend to pose a fundamental question. What are blue-chip funds, and why are they so important?
This blog will help you to know about the blue-chip funds and explain the topic in a simple and practical manner.
Table of Contents
What are Bluechip Funds In Simple Words?
These funds are equity mutual funds that invest largely in large, established companies. These firms are market leaders in their respective industries and have been stable performers in the past.
Typically, blue-chip funds in India are invested in large-cap companies in the best section of the stock market. These businesses possess high brand valuation, good financial strength, and the capability to withstand hard market situations.
That is why when a person wants to know what blue-chip funds are, the easiest answer is this one. They are mutual funds that invest your money in the largest and most trusted companies in India.
Why Are These Referred To As Bluechip Funds?
This term was first used in poker, where the blue chip is the most valuable. The meaning is the same in investing.
Blue chip companies are valuable as they are proven over a period of time. They have constant profits, pay taxes on time, and in many cases, they reward investors by giving them a dividend.
Since these funds buy such companies, they are considered to be relatively stable compared to other equity funds.
Blue Chip Companies in India
Reliance Industries, TCS, Infosys, HDFC Bank, ICICI Bank, and Larsen and Toubro are some of the companies in which most blue-chip funds invest. These are companies that monopolise their industries and are trusted by the population.
Their stock prices can fluctuate between attaining high and low prices, although they tend to regain more quickly following corrections in the market. This consistency causes them to fit long-term investors.
How Blue Chip Mutual Funds Work
When you invest in a blue-chip mutual fund, you do not invest in a single company. The fund manager diversifies it in plenty of large-cap stocks.
This risk diversification decreases risk. One company may be performing poorly, but the effect can be compensated for by other companies.
The fund manager ensures that he actively monitors the performance of the company, its financial status, and its trends in the market to make sound decisions.
Who is Supposed to Invest in Bluechip Funds?
These funds are appropriate for those investors who desire consistent growth with relatively low risk. They are suitable for novice traders who are intimidated by market volatility.
They are also suitable among salaried professionals with long-term objectives such as retirement, educating the kids, or building wealth. Funds can be added to your portfolio if you want to be stable rather than aggressive.
Advantages of bluechip fund investment
Stability is the greatest advantage. There is hardly ever an instance where companies crumble in one day. They have strong balance sheets that enable them to manage economic slowdowns.
There is also improved transparency in blue-chip funds. There is easy information on these companies, which creates confidence among investors.
In the long run, blue-chip funds provide steady returns, although they may not necessarily provide the best returns in one year.
Risks Involved in Bluechip Funds
There is no risk-averse equity investment. Market risk also applies to the funds.
Even large companies drop in price during the market crashes. During bullish periods, when mid-cap or small-cap stocks are doing better, the returns can appear dull. Investors are supposed to know that these funds are not about returns but stability.
Bluechip Funds vs Large-Cap Funds
A lot of individuals are disoriented by the difference between blue-chip funds and large-cap funds. In reality, both are rather similar.
The major investment principle of Bluechip funds is to invest in large-cap firms with good fundamentals that are at the top rank. Very big funds can have a slightly broader selection of companies.
In India, the distinction between the two is slight, and there are even fund houses that interchange the two terms.
What sort of payoff are you going to get?
It is dependent on the market conditions and time horizon. Blue-chip funds tend to have average yet consistent returns in the long run.
They do not necessarily multiply your money within a shorter period of time, but they enable the increment of wealth over a period with reduced stress. Blue-chip funds tend to pay off over the long-term.
SIP or Lump Sum in bluechip funds
SIP is preferred by most investors as it diversifies risks over time. SIP can be seen as a way of making investments regularly without ever worrying about timing in the market.
A lump sum would work when markets are in decline, and you have excess cash.
In the case of a beginner, the steps to take are to stick with SIP, which is less risky and more disciplined.
What should be the duration of your investment?
These funds are best if you are in them long term. Five years should be the minimum, though the longer the better.
Investments that are short-term might not indicate any significant results as a result of market highs and lows. Equity investment is highly dependent on patience.
Taxation on bluechip funds in India
These funds are a type of equity mutual fund. In the case of selling after one year, long-term capital gains tax is charged.
There is a different tax when you sell for less than one year. Knowledge of tax regulations aids in better planning withdrawals.
Mistakes that are common among investors
Most investors pull out of blue-chip funds prematurely due to a slow appearance of returns. They are compared with risky funds, some say, in bull markets.
There are others that halt SIP when the market goes down, and this is detrimental to the long-term performance.
It is more about being consistent than being timely.
Are Blue-Chip funds enough for a portfolio?
These types of funds are an excellent basis. However, diversification is preferable.
The more experience you have, the more you can add additional funds to enhance growth. Nevertheless, the blue-chip funds still tend to be at the center of a balanced portfolio.
Summary
It is now quite clear to you what these funds are and why they are so popular with Indian investors. They are stable, reliable, and long-term without being too risky.
They are not going to help you become wealthy overnight, but they assist in accumulating wealth in a gradual and assured manner.
In case you are interested in having peace of mind and participating in the market, the these funds will be a reasonable starting point.
