To meet your various short-term, medium-term, and long-term financial goals, it is important to invest your hard-earned money in the right financial instruments. You may choose from different types of investments, such as equity, fixed deposits, mutual funds, insurance, and much more. Each of these products has its pros and cons and it is important to understand these before making any investment decision.
If you are a conservative, risk-averse investor, you may prefer investing in fixed-income securities that deliver lower but stable returns. On the other hand, if you are willing to assume higher risks to earn greater returns, investing in equities is advantageous. However, one way to achieve risk-return balance is through investing in mutual funds.
Fund houses offer different types of schemes to suit the various requirements of investors. One of the popular schemes includes blue-chip funds.
What is a Blue-Chip Fund?
Most of the equity funds invest in small or mid-cap stocks. However, blue-chip schemes invest the fund corpus in certain large-cap companies with established businesses and proven financial history. Blue-chips are financially sound, reputed, and well-known large-cap companies listed on the equity markets. Often, such companies comprise a part of the top listed organizations in relation to market capitalization.
Features of Blue-Chip Companies
- Such companies have a long performance record of being profitable and paying regular dividends to the investors
- Blue-chip organizations are led by professional and experienced managers with several decades of experience, thus enabling them to make accurate business decisions
- These companies have been in the business for several years and are often market leaders or among the top within their industries
Why Invest in Blue-Chip Funds?
Different blue-chip mutual funds adopt different investment guidelines and some may invest in mid-cap companies. However, such funds are appropriate if you are a moderate-risk investor and want to build a corpus over a longer period to meet financial objectives, such as children’s education or your retirement.
The objective of such funds is to make large companies work for you to allow you to build wealth over the years. Although blue-chip companies are priced at a premium, these are safe investment avenues. Generally, these are able to withstand the economic downturn and market volatility, which makes them an excellent investment option.
Are Blue-Chip Funds Worth the Hype?
From the above discussion, it is clear that there are several benefits of blue-chip investments. However, you may still wonder if it is worth all the hype. Well, definitely! Such funds are an excellent way to diversify your investment portfolio and mitigate associated risks.
1. Diversification of Risks
It is rightly said that you should not put all your eggs in one basket. This means, you need to diversify your portfolio by including different types of financial products. Therefore, if a particular investment does not perform well, diversification ensures the overall returns are not severely affected due to the earnings on other instruments.
2. Regular Dividends
Most of the blue-chip companies offer regular and steady dividends to their investors. Because these types of equity funds invest in blue-chip companies with a proven performance history, they are able to earn good returns. The regular dividends declared by the companies provide you with an additional source of income.
3. Stable Returns
Blue-chip organizations are managed by management teams of skilled and experienced professionals. Therefore, these companies are able to perform consistently even during market volatility or economic downturns. Moreover, blue-chip companies have lower leverage (debt-to-equity ratio), which allows you to earn stable returns through your investments over the longer run.
Blue-chips offer the potential to provide growth with the capability to deliver higher returns over a long-term. The strong management teams are able to make accurate business decisions that allow companies to withstand economic volatility. Therefore, if you want to build wealth over the long-term but do not want direct exposure to the risk associated with the equity market, investing in blue-chip funds is an excellent choice.
“Mutual Fund investments are subject to market risks, read all scheme related documents carefully.”