Investing in blue chip funds is one of the ways to multiply wealth over time. However, investors must select the right blue chip fund. For long-term investors, blue chip funds can be suitable as they belong to financially strong and reputable companies that are leaders in their respective industries and have performed consistently well. Read on to learn more about the advantages of investing in blue chip mutual funds.
What Are Blue Chip Funds?
Blue chip funds are mutual funds that invest in large companies with a strong market presence. The phrase “blue chip” comes from poker, where the highest value chip is called a “blue chip.” Similarly, blue-chip companies in the Indian stock market belong to companies that have a strong market presence and are leaders in their respective industries.
Since these funds are highly liquid, investors can also sell or buy their holdings with ease. These funds are managed by professional fund managers which offer active portfolio management to investors.
Some of the most popular blue chip companies are Reliance Industries, TCS, Hindustan Unilever, Infosys, etc.
What Makes Blue Chip Funds The Best Bet For Long Term?
Here are 5 interesting reasons that make blue chip funds suitable for long-term investment for amateur and seasoned investors.
1. Invest in Established Companies
One of the primary reasons blue chip funds are ideal for long-term investments is that they invest in well-established companies. Blue chip companies can perform well in economic downturns and have consistent revenue streams. These companies have demonstrated resilience during market downturns and have delivered steady returns over time.
2. Stable Returns
Blue chip funds achieve steady returns over the years through investment in companies boasting solid financial strength along with established performance histories. The ICICI Prudential Bluechip Fund demonstrated exceptional performance when compared to its benchmark over 15 years with a CAGR of 13.77%.
Blue-chip companies spread their operations across multiple industries to minimize market volatility risk. Additionally, systematically reinvested dividends generate additional returns that build up over extended periods.
3. Dividend Income
Many blue-chip companies pay regular dividends to their investors. Therefore, investors looking for a stable passive income with capital appreciation often invest in blue chip funds.
This feature is particularly beneficial for retired investors and conservative investors who want a steady source of income without any risk.
4. Strong Market Presence
Blue-chip funds invest in those companies that own a significant portion of the market share in their respective industry, are well-known brands, and run their businesses efficiently. These blue chip companies have a competitive advantage due to factors like brand loyalty, superior technology, or economies of scale.
Because of their existing clientele and diverse sources of income, these companies can better weather economic downturns. For example, ICICI Mutual Funds use their exposure to these major companies to provide a portfolio that strikes a balance between stability and growth.
5. Less Risky than Mid Cap or Small Cap Funds
Blue chip funds carry less risk than mid-cap or small-cap funds. Since these funds invest in large and stable companies, they are better at performing during unstable economic conditions. Investors do not have to worry much in case the market crashes or there is any inflationary pressure.
Exercising patience and adopting a disciplined approach towards investment is the best way to get stable returns from these funds.
Conclusion
Investors seeking growth-oriented investment options must opt for blue-chip funds. Long-term wealth creation, availability of regular dividends and strong returns make it an ideal investment option. While there is no risk-free mode of investment, blue-chip funds are comparatively safer. However, investors must assess their risk tolerance and ensure that their investment decisions align with their investment objectives.
