What are Blue Chip Funds? Meaning, Advantages and Features

Blue Chip Funds

There are different categories of mutual funds: large-cap, mid-cap, and small-cap. One of them related to large-cap funds is the blue-chips funds. A blue-chip fund invests in stocks of well-established companies with reputable histories of financial success. This also includes companies with consistent dividend payouts and sustained long-term profitability. In financial terms, a bluechip fund represents a company well-known by its name or brand, requiring minimal introduction. It provides widely recognised products or services that hold significant value in the market. This is evident in the company's financial aspects, including sales, profitability and dividends among other indicators.

Understanding Blue Chip Funds

Blue chip stocks are one of the most favoured investments in the stock market. Well known Companies like Tata, Reliance, Hindustan Unilever and others fall under the category of blue chip companies. These funds are investment plans that focus on a collection of stocks known for consistently providing strong and stable returns over an extended period.

These stocks belong to large market companies, which makes them comparatively less risky. In essence, Blue chip funds can be seen as reliable financial plans offering decent returns. The stocks within a blue chip fund can yield significant profits, enhancing the overall quality of an investor's portfolio.

How does It Work?

Well-known brands with impressive sales and returns are part of the blue-chip fund, providing investors with reliability and safety. Blue-chip mutual funds are also called growth funds. Blue chip companies boast a robust financial history, making them advantageous for investors. Blue chip funds typically consist of stocks from the top 100 companies based on market capitalisation. Due to the longer investment horizon associated with blue chip companies, the cost of funds tends to be relatively higher.

To introduce some diversification, these funds may also include investments in bonds and cash equivalents. Younger investors, with a longer investment horizon, can tolerate the higher risk associated with these stocks. Consequently, they can allocate more of their portfolio to stocks and equities. Investing in Blue Chip funds is a way to establish the core of your investment portfolio.

Advantages of Blue Chip Funds

The following are the advantages of investing in Blue Chip Funds.

1. Capital Growth

Building substantial capital over an extended period is achievable through investments in blue-chip funds. Choosing companies with a solid track record enables the creation of a robust portfolio and ensures stability amid unpredictable stock market conditions.

2. Financial Objectives

Investing in a blue chip fund serves to achieve long-term financial goals.

3. Economic Strength

Due to their size, blue chip organisations may possess an economic advantage. The competitive edge of these companies in comparison to others results in a significant market share, facilitating the attainment of long-term gains that outpace inflation.

4. Liquidity

Blue chip funds offer flexibility, allowing for redemption at your convenience when navigating financial challenges. Additionally, it is possible to leverage blue chip fund units to secure a loan.

Features of Blue Chip Funds

Blue chip funds, a type of mutual fund primarily investing in stocks of well-established and financially stable companies, possess several distinctive features. Here are some key characteristics.

1. Assured Returns

Blue chip funds generate dividends, providing a reliable source of returns. These funds invest in well-established blue chip companies, offering a secure avenue for investment and ensuring a guaranteed income with consistent returns.

2. Creditworthiness

Blue chip companies can generate ample capital to meet their financial obligations, making shares issued by such companies highly creditworthy.

3. Risk Factor

Given the stability in financial performance, stocks issued by these companies carry a lower risk factor.

4. Investment Horizon

Blue chip funds are well-suited for long-term investments, proving beneficial in the pursuit of financial goals.

5. Growth Prospects

Blue chip companies have already attained their maximum growth potential, resulting in a consistent growth trajectory for blue chip shares.

6. Taxation

According to the Income Tax Act, Section 80C, short-term gains are subject to a 15% taxation rate, while gains exceeding Rs 1 lakh are taxed at a rate of 10%.

Conclusion

Blue chip funds stand out as a robust investment option, embodying stability, reliability, and potential for sustained growth. The term "blue chip" denotes companies of substantial financial strength and market dominance, and when incorporated into mutual funds, they offer a distinctive set of advantages. For those looking to streamline their investment journey, utilising a mutual fund app can offer a user-friendly and efficient way to manage systematic investment plans.

Note: Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.

Statutory Disclaimer: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

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Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.