Blue chip funds: A must-have in your investment portfolio

Blue chip funds: A must-have in your investment portfolio 1

Blue chip funds offer you various advantages as a mutual fund investor. Not only can they generate reliable results, but they also help you potentially improve your creditworthiness. Read on to learn more about blue chip funds and why you must have them in your portfolio.

What are blue chip funds?

Put very simply, a blue chip fund is a fund that invests in “blue chips” – that is, in the stocks of well-established, large companies that have a long track record of success and profitability. They generally offer low volatility. In India, the stocks of large-cap companies are generally referred to as “blue chips”. These funds invest a majority of their corpus in the equities of the top 100 firms in India.

Features of blue chip funds:

Here are some attractive features of blue chip funds:

  • You can earn steady returns by investing in blue chip funds: Since these funds invest in the stocks of established, large-cap companies, they generally pose lower risk and help you generate steady, reliable returns.
  • Shares issued by blue-chip companies are highly creditworthy: Most large-cap companies generate enough returns to clear their financial dues. This makes their shares highly creditworthy. Hence, owning these shares can improve your overall creditworthiness.
  • They pose a lower risk to the investor: There is a lower risk associated with the stocks issued by blue chip companies. You can also use them to mitigate the overall risk in your investment portfolio by diversifying it.
  • You can choose blue chip funds if you wish to invest for the long term: Blue chip funds are efficient choices for investors who wish to invest in the long term. If you have a long-term investment horizon, investing in a blue chip fund will help you benefit from a significant capital appreciation in the long run. This feature of blue chip funds helps you achieve your financial goals.
  • They offer you a high growth potential: If you wish to steadily grow your returns over time, you should consider investing in a blue chip fund. These are companies whose growth trajectory is steady, which is why they pose such a low risk to investors.
  • Blue chip funds are open-ended investments: You can sell or withdraw your blue chip fund investment whenever you wish to do so. This is possible since blue chip funds are open-ended, allowing more convenience and flexibility to the investor.
  • You can generate results adjusted for inflation over time: If you are looking to maximize your returns over the long term and generate a source of income via your investments, you must consider investing in a blue chip fund. Since large-cap companies generally have a considerable market share, they allow you to generate results that are adjusted for inflation over time.

Points you must consider before investing in blue chip funds:

You must consider the following points before investing in a blue chip fund:

  • Consider the AMC’s track record: You must first consider the asset management company’s track record – the companies it invests in, its performance in the past, etc.
  • Assess the fund manager’s investment style: Blue chip funds are generally actively managed equity mutual fund schemes that employ a fund manager. You must assess the fund manager’s investment style. Read up about the fund manager and about the funds that they have managed in the past.
  • Check the expense ratio charged by the fund: Avoid investing in very expensive blue chip mutual funds as doing so could impact your ability to generate returns over time.
  • Analyze the fund’s portfolio: Check if the fund’s portfolio is well diversified. Ensure that the large-cap fund adheres to its investment objectives.
  • Assess the fund’s performance against its benchmark: You must also assess the fund’s performance against its benchmark index. Track the fund’s performance in the past three to five years.

It is advisable to have blue chip funds in your investment portfolio as they offer stable, consistent returns over the long run and pose a lower risk to your portfolio while also offering diversification.

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