Investments in mutual funds are popular for diversifying portfolios and gaining exposure to a wide range of assets. In particular, there are mutual funds that invest primarily in companies with a proven track record of performance and are well-established and financially stable. These companies are often considered to be “blue chip” stocks and are considered a safe and reliable investment option. To learn more about the benefits and drawbacks of blue-chip mutual funds and how to choose the right one for your investment objectives, read on.
What are blue chip mutual funds?
Blue chip funds are a type of equity mutual fund that invests primarily in the stocks of well-established companies that have a significant market capitalization. These are long-standing businesses that have a proven track record of success over an extended period of time. However, in accordance with the regulations established by the Securities and Exchange Board of India (SEBI) for the classification of mutual funds, there is no recognized category known as blue chip funds. The term “large-cap funds” is frequently substituted for the term “blue chip”.
You might find that there are certain mutual fund schemes whose names begin with the words “emerging” and contain the phrase “blue chip” elsewhere in the name. These are major and mid-cap schemes whose names consist solely of the words “blue chip.” It is important not to choose a scheme at random simply because it contains the term in its name.
Large-cap funds are required by SEBI to invest at least 80 percent of their total capital in the shares of the 100 largest companies ranked by their market capitalization. This definition is quite close to that of blue chip funds, which invest in the largest 100 companies.
Advantages of investing in blue chip funds
- You have the option of investing in such funds to amass amass wealth over a period of time. It gives you the ability to invest in financially stable companies that have a proven track record of success. The inclusion of blue chip funds in your base portfolio might provide you with steadiness in the face of unpredictable stock markets.
- Blue chip funds are open-ended, and you are able to redeem units in a relatively short amount of time. In times of financial strain, it facilitates a smooth withdrawal from the investment. In addition, you have the option of securing a loan against the units of such a fund.
- Blue chip funds carry a low expense ratio, which is the expense that arises from managing the mutual fund. In addition, if you select funds with a lower expense ratio, you have a better chance of realizing a profit from your investment over the long term. Blue chip funds tend to perform above or in line with benchmarks such as Nifty or Sensex, especially over a longer time frame.
While blue chip funds can be a safe and reliable investment option, it’s important to thoroughly research the fund and ensure it aligns with your investment goals and risk appetite. As with any other investment option, blue chip funds also come with risk factors. Hence, ensure you do your research about the fund and invest only if it aligns with your investment taste and risk appetite.