The Working of a Blue Chip Fund

The Working of a Blue Chip Fund

When a fund put over 65% of the portfolio in stocks the fund is regarded as equity funds. The money that is raised is typically put in equity-related and equity funds. Owing to their focus on stocks, equity funds are also known as stock funds. An equity fund is generally characterised on the basis of its themes and sector, market capitalisation and style of investment.

What is a Blue-Chip Fund?

A blue-chip fund is a kind of mutual fund that puts money in blue-chip stocks or shares. The blue-chip investment is usually made in companies that are renowned and well-established brands with a good financial track record in terms of sales returns, profitability and dividends. Blue-chip funds tend to yield returns even in adverse and volatile market situations.

Mutual funds that invest in blue-chip shares or stocks are also called growth funds; a blue-chip investment is regarded to be safe, stable and most reliable investment owing to their comparatively lesser volatility to the smaller companies.

The working of a Blue-Chip Mutual Fund

Blue-chip mutual funds offer investors the chance to gain benefits from the overall financial growth of blue-chip companies. Though Blue-chip mutual funds are mostly invested in blue-chip stocks, investors can also invest them in a different category like bonds, cash or mid-caps for diversification. Blue-chip investment can prove to be very beneficial for those Investors who have put their money in an equity fund for a long-term financial goal accomplishment like children’s education, retirement planning or marriage.

Different types of Equity Funds offered by IB

Equity funds can be categorised on the basis of the funds’ investment mandate and on the kind of sectors and stocks they have invested in.

• On the basis of themes and sector:

The kinds of equity fund that invest in a particular theme or sector come under this category. In the case of sector funds, investments are made in a specific industry like Pharma, IT or FMCG. In the case of thematic funds, investments are made in international stocks or growing consumer companies. Both are primarily concentrated and dependent on a kind of industry and therefore are deemed to be riskier and equity funds that are diversified in nature. Thematic and sector funds can also be diversified but in terms of market capitalisation.

• On the basis of Market Capitalisation:

More than often, the large-cap equity funds put money in large-cap stocks that are stocks of the economy’s biggest listed companies. The companies that make large-cap funds are reliable and stable investments.The mid-cap equity funds and the small-cap equity funds put their money in companies that are medium and small sized. The medium cap and small cap funds offer fluctuating returns owing to disposal towards market volatility but they also have the potential to grow over time due to improvement in their growth in the market. There is, in fact, a fund called mid-cap-small-cap fund where equity fund puts their money in both small and medium companies. Certain equity funds also invest in small-caps, mid-caps and large-caps stocks and are known as multi-cap funds.

• On the basis of Style of Investing:

The above-mentioned funds follow an active investing style, where the fund manager adjusts the composition of the investment portfolio to suit the prevailing market conditions. There are also funds that tend to follow the composition of a fixed index in terms of its composition and are popularly known as the index funds. Index funds are passively managed and they put money in same proportions, in same companies that form the index which the fund follows. Since Index funds don’t demand active management they are priced lower than actively managed funds.

“Mutual Fund investments are subject to market risks, read all scheme related documents carefully.”

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