What is Blue Chip Fund?

Blue Chip Fund

Investments are linked to our objectives, which may be long-term or short-term. Many investors, on the other hand, tend to invest in funds that will provide them with assured returns because such funds can be useful in an emergency.

The yields from such high-on-performance funds will offset losses from other investments.

Blue Chip Funds are securities that are used to achieve this goal. A Blue Chip Fund return assists in the balancing of an investor’s portfolio.

The scheme has the potential to provide investors with high returns while still compensating for any losses they may incur.

What are Blue Chip Funds?

There is no official group for blue-chip mutual funds according to SEBI’s mutual fund categorization. However, several mutual fund firms and advisors use the word “Blue Chip” to refer to large-cap funds.

The term “blue chip” appears in the names of many huge mutual funds in India. SBI Blue-chip Fund, ICICI Prudential Blue-chip Fund, Axis Blue-chip Fund, and others are examples.

Furthermore, some schemes use the term “blue-chip” before the word “emerging” in their names. Principal Emerging Blue-chip Fund, Mirae Asset Emerging Blue-chip Fund, and others are examples. The fact that these large and mid-cap funds are crucial.

Blue-chip companies are large corporations with a strong financial foundation and a widespread distribution network. These businesses provide high-quality goods and services. Blue-chip firms are well-known both domestically and globally.

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These businesses are more resistant to downturns in the economy. Furthermore, they may continue to operate and expand despite unfavorable market conditions. As a result, these companies’ stocks are less volatile.

Large-cap mutual funds are required by SEBI to invest at least 80% of their total assets in large-cap companies. The top 100 firms by market capitalization are known as large-cap companies. As a result, the majority of firms pass the blue-chip test.

How do Blue-Chip Funds Work?

Blue-chip mutual funds and large-cap mutual funds are two types of mutual funds that are related. Both of these funds are open-ended equity funds. They put at least 80% of their capital into large-cap firms. The top 100 firms by market capitalization are known as large-cap companies.

The fund manager chooses large-cap stocks that are strategically aligned with the fund’s investment objective. These funds profit from the expansion of blue-chip or large-cap firms.

The remaining 20% of the total assets are distributed to other asset groups and categories by the fund manager. The portfolio manager, for example, can invest in mid-cap stocks, bonds, or cash & cash equivalents.

Even though these funds are pure equity funds, they are less volatile than other equity schemes such as mid-cap mutual funds, small-cap mutual funds, and value mutual funds.

The portfolio is protected from uncertainty by the large companies in which the fund invests. Large-cap or blue-chip mutual funds have the potential to produce substantial long-term returns. As a result, investing in these mutual funds requires a long-term investment horizon. Debt funds are a good option for people looking for short-term investments.

Benefits of Blue Chip Funds

Capital Growth

For a 5-year or longer investment period, a blue-chip equity fund or large-cap fund is suitable. Since this mutual fund scheme is for the long term, investors will be able to build up a substantial corpus throughout their investment.

If an investor invests for the long term, these funds may help with capital appreciation. Debt funds are a safer choice for investors looking for short-term investments.

Stability

Large-cap funds invest in stocks with a market capitalization of more than $1 billion. The market capitalization of large-cap stocks varies from one to one hundred. These are well-established businesses that provide high-quality products and services.

They have a strong customer base, a well-established distribution network, and a sound financial basis. When compared to mid-and small-cap companies, they are more resilient to economic downturns. As a consequence, the portfolio is more stable.

Diversified Business

A diversified business portfolio is typical of large-cap companies. They don’t depend on a single source of revenue. They’ve spread their wings across a variety of industries and sectors. As a result, these businesses have a well-known brand. All of this boosts investor confidence in the company, allowing the stock price to rise even higher.

Can Stand in Market Volatility

When stocks are volatile, large-cap companies are less impacted than mid or small-cap companies. This is because markets have more trust in these companies than in others. After all, they continue to function despite the economy.

Highly Liquid

Since they invest in big corporations, large-cap funds are extremely liquid. Large-cap firms have a high volume of trading in the industry. They are well-researched and widely followed in the industry, resulting in increased liquidity. Furthermore, some firms have more knowledge available to investors than others.

 

Disadvantages of Blue Chip Funds

Low Growth

As compared to mid and small-cap companies, large-cap companies are more mature and have less space for expansion. Small and mid-cap businesses are forming to become big corporations. As a result, when compared to large-cap firms, their growth is considerably higher.

Low Volatility

Large-cap businesses are more forgiving of market uncertainty. In contrast to mid-and small-cap firms, their stock is less volatile due to their stable foundations. While this can be beneficial during a downturn, it can be detrimental during a bull market. When opposed to mid or small-cap stocks, stock prices cannot see much appreciation during the bullish process.

Who Should Invest in Blue Chip Funds?

Open-ended equity mutual funds with a large capitalization are known as large-cap mutual funds. As a consequence, investing over a long period yields significant results.

Investors with long-term financial aspirations, such as retirement or their children’s schooling, should consider investing in them. These mutual funds invest in companies with a high market capitalization.

Large-cap corporations have a long track record of success. They are more financially safe and less vulnerable to market fluctuations than mid-and small-cap firms.

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They will continue to work even though the economy is in a recession. As a result, blue-chip funds are suitable for investors seeking equity exposure with a moderate understanding of risk.

Since large-cap stocks are commonly followed in the market, this mutual fund scheme is extremely liquid. As a result, investors seeking quick withdrawals without having to deal with liquidity problems can put their money into these funds.

Open-ended equity mutual funds with a large capitalization are known as large-cap mutual funds. As a consequence, investing over a long time yields significant results.

Investors with long-term financial aspirations, such as retirement or their children’s schooling, should consider investing in them. These mutual funds invest in companies with a high market capitalization. Large-cap corporations have a long track record of success.

They are more financially safe and less vulnerable to market fluctuations than mid-and small-cap firms. They will continue to work even though the economy is in a recession.

As a result, blue-chip funds are suitable for investors seeking equity exposure with a moderate understanding of risk.

Since large-cap stocks are commonly followed in the market, this mutual fund scheme is extremely liquid. As a result, investors seeking quick withdrawals without having to deal with liquidity problems can put their money into these funds.

What are the best Blue-Chip Mutual Fund Schemes?

The best fund is the one that best fits an investor’s criteria and needs. A fund that works well for one investor will not work well for others.

As a result, investors should invest in funds that best fit their financial needs, investment objectives, and risk tolerance. However, according to scripbox’s shortlist, there are only a few top funds in this group.

Throughout India, the best performing blue-chip mutual funds have always been:

  • Axis Blue-chip Fund
  • HDFC Top 100 Fund
  • ICICI Prudential Blue-chip Fund
  • ICICI Prudential Blue-chip Fund Institutional I
  • Mirae Asset Large Cap Fund

When investing in mutual funds, the following factors must be taken into account:

Fund performance (historical performance):  Before investing in a fund, investors should look at its past results. Though past success does not guarantee future results, it does provide insight into how the fund worked during various market cycles.

Portfolio manager: The portfolio manager’s experience has an effect on fund results. To put it another way, the fund manager’s decisions and tactics have a significant impact on the fund’s success.

As a consequence, when investing in a fund, it is important to consider the manager’s experience and knowledge.

Expense ratio: For its management, the fund house charges a fee. The cost ratio is the fee that is paid as a result of this. To be able to earn meaningful returns, you must invest in a fund with a lower expense ratio.

Exit load: The premium paid by a fund house for early redemptions is known as the exit load. For redemptions made before one year from the date of investment, the exit load for equity mutual funds is about 1%.

How to Invest in Blue Chip Funds?

Blue-chip funds may be purchased through a systematic investment plan (SIP) or in a lump sum. SIP investment is the most common of the two. SIP investing is a method of investing in small quantities daily.

They can choose between a monthly or quarterly SIP. The monthly SIP, on the other hand, is the preferred choice. A SIP calculator can also be used to measure SIP returns. The SIP calculator on Scripbox calculates the possible SIP return on investment.

Tax on Blue Chip Funds?

Pure equity funds are known as blue chip or big cap funds. The profits from these funds are taxable depending on how long they’ve been invested.

Redemptions made within one year of investment are subject to a 15% Short Term Capital Gains Tax (STCG). Within one year, redemptions are subject to long-term capital gains tax (LTCG).

Gains of up to INR 1 lakh per year, on the other hand, are exempt from the LTCG levy. Gains of more than INR 1 lakh per annum are subject to a 10% LTCG levy. 

To sum up

Blue Chip funds are widely popular because the overall market depends on this due to the size of the market cap, and investors should understand the importance of such funds before investing in them. Blue Chip funds should be part of an investor’s portfolio, but not their entire portfolio.

Rather than owning just Blue Chip funds, it is wise to invest in a diverse portfolio. With a proportion of Blue Chip funds, high-risk or moderate-risk investors may diversify their portfolio by investing in funds across sectors and capitalizations.

Somil Gour
Somil Gour is an intern content writer at Insiderpedia. Have experience in sales and marketing. Pursuing BMS from Jagran Lakecity University. He has great ambitions to have a government job in RBI and secure some challenging position.