In modern times, you must have observed millennials discussing about mutual funds. Discussions range from how to invest in a mutual fund to how many types of mutual funds are there in India. Most of you might be aware of the regular Equity funds, fixed income funds, hybrid or balanced funds, etc. Many executives might also be aware of ELSS and other tax saving alternatives. This article is focused at providing an understanding about blue chip funds.
A blue chip fund normally invests in stocks of well-established companies having fine and credible track records of financial performance. This also includes the criteria of steady payout of dividends and profitability over the years. Blue chip is a company that renowned among masses by its brand name and doesn’t need much of an introduction. Blue chip companies offer widely accepted goods or services that command a certain value in the customer market. This value is directly reflected in the company’s financials like numerations in form of sales, profitability, dividends, etc.
Blue chip funds and blue chip companies have adopted their name from game of poker where “blue chips” are of the highest value. Blue chip companies are strong enough to endure economic volatilities and recessions proficiently than other competitors in the market. These companies have competency of performing well or at least above average standards even during adverse market conditions. All this contributes to their track record of growth and stability. Therefore, blue chip funds are undoubtedly more ‘reliable’ investment options for investors.
For the above reasons, blue chip stocks are usually less volatile compared to lesser known company names. Investors prefer blue chip companies because they are popular among people and provide a stability to their portfolios. The stock price of a blue chip company usually tracks a broader market and can be expected to move within the same range. One reason for this is that the broad market indices are made up of blue chips.
Blue chip funds of both mutual funds and ULIPs are launched to cater a specific purpose of providing an opportunity to investors to benefit from the financial growth of renowned blue chip companies. So while the funds of investor are are invested in blue chips, they may have a provision to invest outside the blue chip universe like in mid caps, bonds or cash, to solve their purpose of diversification. The investment guidelines may vary across ULIPs, mutual funds, etc. and the investors are informed of these things through product literature as well as company websites.
Investing in a blue chip fund is an ideal deal for an investor with appetite for equities and long-term goals like retirement planning, saving for child’s education or marriage, etc. Owning blue chip funds on a standalone basis or as a portfolio can prove useful in long run.