What is a Blue Chip Fund?

Blue-chip funds are a category of mutual funds that invest primarily in financially strong and well-established companies. This article explains their structure, characteristics, and factors to consider before including them in a long-term portfolio.

Contents

• What is a Blue Chip Fund?
• Understanding Blue Chip Funds
• Setting Up Your Investment Account
• Key Benefits of Blue Chip Funds
• Factors to Consider Before Investing
• Conclusion
• FAQs

Understanding Blue Chip Funds

A blue chip fund is a kind of mutual fund that primarily invests in blue chip stock, such as shares of large, respected corporations with a track record of consistent performance. Companies are generally industry leaders with strong financials and a track record of operational consistency.

The phrase “blue chip” comes from the poker game, where blue-colored chips hold the most significant value. Likewise, blue-chip businesses are seen as financially robust and reliable, which appeals to both seasoned and new investors.

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Setting Up Your Investment Account

People have to first open an account with a SEBI-registered mutual fund distributor or directly with an AMC (Asset Management Company) providing the fund in order to start investing in a blue-chip fund. Setting up an account consists of linking a bank account for transactions and fulfilling KYC (Know Your Customer) regulations.

Depending on their financial goals and available resources, investors can select SIP (Systematic Investment Plan) or lump sum investments. For those with little funds,SIPs can be a convenient way to begin investing with smaller amounts, depending on personal financial plans.

Key Benefits of Blue Chip Fund

Blue-chip funds provide various advantages, particularly for investors seeking balanced exposure to equities.

• Stability:Blue chip funds typically invest in large-cap companies that may offer relatively lower volatility than mid or small-cap stocks. 
• Less Risk Compared to Mid/Small-Cap Funds: Though not risk-free, blue chip funds tend to bear less market risk than funds investing in smaller enterprises.
• Regular Dividend:Some of the underlying companies in blue chip funds may distribute dividends, which could contribute to total returns.
• Long-term Growth: Over time, blue-chip enterprises often demonstrate consistent capital growth.

Factors to Consider Before Investing

Investors should consider the following before investing in blue chip funds:

• Fund Performance: Though past returns may not ensure future outcomes, examine the prior 3–5 year performance.
• Expense Ratio: A reduced expense ratio guarantees that more of your money goes towards expansion.
• Fund Manager Track Record:The experience and track record of the fund manager can impact the fund’s strategy and performance over time. 
• Investment Horizon: Long-term objectives like retirement, children’s education, or wealth creation are better served by blue-chip funds.

Averaging the purchase cost and improving returns can be helped by using the SIP mode and remaining invested through market cycles.

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Conclusion 

Blue-chip funds offer exposure to well-established companies and may appeal to those seeking relatively lower volatility in their equity investments. While these funds do not eliminate risk, they can be considered part of a diversified long-term portfolio strategy.

Disclaimer

Investing in mutual funds has market risk. Before investing, please read all scheme-related papers thoroughly. This post is not meant as investment advice but rather for education and information. Before making any investing choices, talk to a qualified financial counsellor.

FAQ