Choosing the right fund for investment is essential. The investor is going to put his hard-earned money into it in the hope of getting maximum return. Long-term investors prefer blue-chip funds for investors who are looking for a stable option for wealth creation. This fund is created by investing in large companies that are stable and have a good track record.
This article will help you understand blue-chip funds in detail and whether it is appropriate for investing or not.
What Are Blue-Chip Funds?
Blue-chip funds are mutual funds or ETFs that invest a major part of their money in blue-chip stocks, companies with a history of good record, and stability. These companies are usually a part of the Nifty 50 and the Sensex, but may also include other top large-cap firms.
Features of Blue-Chip Funds:
- Stability: They make investments in businesses that are less volatile to economic downturns and have strong financial standing.
- Regular Dividends: A lot of well-known corporations have a history of paying dividends regularly, though payouts can vary and are not guaranteed.
- High Market Capitalisation: The companies with high market capitalization, i.e., higher market presence, are included in such funds.
- Less Volatility: Comparatively, there is less price volatility in blue-chip stocks as mid-cap and small-cap funds. Â
- Good Long-Term Growth: It provides consistent, moderate growth, which makes it appropriate for generating wealth over the long run.
Who Should Invest in Blue-Chip Funds?
Investors who value stability, steady returns, and long-term wealth creation are the target audience for blue-chip funds. Depending on their objectives, risk tolerance, and investment horizon, they are suitable for a wide spectrum of investors, even though they might not provide as high returns as small-cap or theme funds.
1. Novice and cautious investors
For people who are new to the equity market or have a low risk tolerance, blue-chip funds are a great place to start. These funds provide:
- Exposure to reputable businesses with solid foundations.
- Less market turbulence than small- and mid-cap funds.
- A relatively safe way to begin investing in stocks without worrying about short-term volatility, but still requires awareness of market fluctuations.
For instance, a 25-year-old salaried person who is just beginning their investing career can use a ₹2,000 monthly SIP in a blue-chip fund to progressively accumulate wealth with relatively lower risk compared to other equity segments.
2. Investors with long-term goals
Blue-chip businesses can produce compounded returns with relatively lower risk of capital erosion over long periods, compared to other equity segments. These funds are ideal for people saving for long-term objectives like:
- Corpus for retirement
- Education of children
- Purchasing a home or providing capital for a business
3. Active Professionals and Inactive Investors
These funds support a long-term investment approach suited to those with busy lifestyles because they are actively managed by professionals and are made up of reputable businesses. Not everyone is interested in or has the time to keep a close eye on stock markets. Blue-chip funds are a fantastic option for:
- Professionals in the workforce who seek tranquillity.
- Passive investors who favour portfolios that require little upkeep and rebalancing.
4. SIP-focused, disciplined investors
Blue-chip funds are frequently profitable for investors who favour a Systematic Investment Plan (SIP) because:
- Purchasing additional units during market downturns is known as rupee cost averaging.
- The power of compounding raises the ability of reinvested returns to grow over time.
- Reduced volatility and evened out the returns curve in contrast to other equity markets.
5. Investors with Moderate Risk
Blue-chip funds balance risk and return potential. These funds are frequently chosen by investors with a moderate risk tolerance who want equity exposure without significant volatility. They provide:
- Greater stability than mid- or small-cap funds while retaining the long-term return potential of equities.
- Protection during market downturns because of the underlying companies’ quality.
How to Start Investing in Blue-Chip Funds
Getting started is easy and accessible once you’ve determined that blue-chip funds fit with your investing objectives. Here is a brief guide:
1. Select the Right Fund:
Invest in funds that have a good performance history, where the fund managers are knowledgeable, and the returns are steady over five to ten years.
2. Investment Methods:
- SIP (Systematic Investment Plan): To take advantage of rupee cost averaging and long-term discipline, invest a set amount each month.
- Lumpsum: If you have extra money and the market is right, invest more all at once.
3. Investing Platforms:
Use reliable platforms such as Groww, Paytm Money, Zerodha Coin, or AMC websites directly.
Bottomline
Blue-chip funds can be a useful and reliable component of your long-term investment plan if you match your strategy accordingly. They have good stability that attracts beginners to experienced investors. However, like all investments, they do carry some risk and are not completely risk-free.
Choosing a fund solely depends on your financial goals, investment horizon, and risk tolerance. Analyse and then make a wise decision instead of following the rat race.
Written by: Tanya Kumari
