What are Blue Chip Mutual Funds? Explore Types, Benefits, Risks and How They Work
For many investors, mutual funds have emerged as a strategic investment avenue alongside different asset classes to accomplish their financial objectives. Among the available mutual funds, blue chip funds stand out for their consistent performance over the years. These funds are unique as they invest in blue chip stocks, which are issued by large, well-established companies with robust financial structures. In this article, we will delve into the best blue chip mutual funds and the distinct advantages they offer.
What are Blue Chip Funds?
Blue chip mutual funds are investment vehicles that pool money from multiple investors to purchase shares in a diversified portfolio of blue chip companies. These professionally managed funds aim to invest in well-established and financially stable companies, typically in Nifty 50 companies.
This article will specifically look at blue chip mutual funds’ types, features, benefits and risks. You also can learn more about the specific top 10 blue chip mutual funds in India from our collection article!
What are the Features of Blue Chip Mutual Funds?
The features of blue chip mutual funds are:
- Dividend Income: Many blue chip funds distribute regular dividends to their shareholders. The top blue chip mutual funds in India provide investors with a sense of security as they ensure a steady and reliable stream of returns and dividends.
- Cost-Efficiency: Blue chip mutual funds may typically maintain lower expense ratios than actively managed funds. This cost-efficiency can translate into a more favourable investment experience.
- Investment Horizon: Blue-chip mutual funds are usually held for a long period of time, making it suitable for long term investors.
- Professional Management: Blue chip mutual funds are managed by seasoned fund managers who make investment decisions on behalf of investors. These professionals conduct thorough research, assess market conditions, and select the most promising blue chip stocks for the portfolio.
- Resilience to Market Downturns: Blue chip mutual funds have the potential to provide resilience and mitigate risk in case of market downturns.
How Do Blue Chip Mutual Funds Work?
A blue chip mutual fund manages funds from individual investors and uses those funds to invest in blue chip companies. Fund managers make investment decisions on behalf of investors, selecting a mix of high-quality blue chip stocks to create a diversified portfolio.
Types of Blue Chip Mutual Funds
In India, blue chip funds fall into two broad categories
- Large-Cap Funds: A large-cap fund invests in the top 100 companies listed on NSE/BSE. Therefore, this reduces the risk exposure associated with smaller and mid-sized enterprises. A large-cap fund functions as a risk diversifier, constructing a portfolio that maximises returns at a specified risk level.
- Index Funds: An index fund is a passive fund that doesn’t try to outperform the market but aims to replicate the index. For instance, if the Nifty index yielded 30.05% returns, an index fund tracking the Nifty would aim to deliver comparable returns by constructing a portfolio that mirrors the index’s composition and weightage.
Benefits of Investing in Bluechip Mutual Funds
Blue chip mutual funds offer a range of advantages. Some of them have been listed below:
- Returns: These best bluechip mutual funds aim to give investors returns. By investing in companies with strong track records, the blue chip funds seek to deliver steady and reliable performance. This makes them suitable for risk-averse investors seeking to fulfil long-term goals.
- Liquidity: Blue chip funds in India offer the flexibility of redemption at any time. Moreover, investors can use their fund units as collateral to secure loans. Investors invested in blue chip mutual funds are usually eligible for a loan against mutual funds (LAMF). Investors can apply for a LAMF at smallcase against their blue chip funds and acquire funds within a few clicks!
- Capital Appreciation: Investing in blue chip funds can cultivate substantial capital over an extended period. Thes funds often observe long term capital appreciation as they invest in high-growth and valued stocks.
Risks and Considerations When Investing in Blue Chip Mutual Funds
While these mutual funds offer stability and potential for consistent returns, it’s essential to be aware of the risks and considerations associated with these investments.
- Market Risk: Like every other mutual fund scheme, market risk persists with blue chip funds as well. When the market is in a bearish phase, despite their stability, blue chip funds are marginally affected by market downturns.
- Performance During Economic Downturns: Blue chip mutual funds tend to be resilient during economic downturns, but their performance can still be impacted. It’s crucial to assess how these funds have historically performed in challenging economic conditions and whether they align with your risk tolerance.
How to Invest in Blue Chip Mutual Funds?
To build a solid investment foundation with blue chip mutual funds, you must understand how to invest in them. Let’s explore the steps that you need to follow:
- Research: Research across best blue chip funds and identify the one that resonates with your investment thesis and risk tolerance.
- Connect Demat Account: You must have a demat account to invest in mutual funds. If you do not have a demat account, you can open a demat account with smallcase.
- Place the Order: Go to the blue chip mutual fund scheme that you wish to invest and place the order.
Why are Investors Interested in Blue Chips Funds?
Here are a few common reasons why investors favour these established best blue chip stocks:
- Most blue chip companies have established brand names that ensure better corporate governance. Blue chip mutual funds consist of stocks of companies that exhibit established histories, like most Tata Companies have been around for over 100 years.
- While blue chips may not generate high returns like mid-caps and small-caps, they offer lower risk, contributing to a more conservative risk profile, as these blue chip funds have the potential to provide resilience during market downturns and mitigate risks.
- Blue chip funds can frequently maintain stable dividend payment policies, enhancing predictability regarding shareholder return expectations.
Factors to Consider When Investing in Blue Chip Mutual Funds
- Expense ratio: The expense ratio is the expense of running a mutual fund. Choosing funds with a lower expense ratio may give you more returns over time. However, the expense ratio should not be the only factor investors cosider when selecting suitable funds.
- Track Record of the AMC: Review the asset management company’s (AMC) history before investing in a blue chip fund. Strong track records indicate resilience to large, unexpected withdrawals.
- Fund’s Portfolio: An investor must conduct a thorough portfolio analysis to know where the blue chip fund is investing. These are large-cap and mid-cap funds, ensuring that the large-cap fund adheres to its investment objectives.
- Reinvestment and Compounding Benefits: Consider reinvesting dividends and capital gains earned from your blue chip mutual funds. Reinvestment allows your returns to compound over time, potentially increasing your overall gains. For long-term investors, this method can be beneficial.
- Performance Against Benchmark: Select blue chip funds that are outperforming the benchmark and their peers over time. Subsequently, monitor their performance records for the preceding three to five years to assess their ongoing success.
To Wrap It Up…
Blue chip mutual funds, being equity mutual funds, invest in large-cap companies recognised for their stability and lower susceptibility to market fluctuations. Hence, they offer a diversified portfolio of established companies with a consistent performance history, providing a relatively safer investment option for those with a long-term horizon. As always, investors must research and consult their financial advisors before investing in India’s best blue chip mutual funds.
Frequently Asked Questions About Bluechip Mutual Funds
Yes, blue chip funds are generally considered good investments for risk-averse investors who are looking to build a corpus for the long term. They focus on well-established, financially stable companies, offering stability and the potential for consistent returns.
Investing in blue chip Funds is generally safer than other investment options due to the stability of established companies in the portfolio. However, assessing your risk tolerance and diversifying your portfolio to manage risk effectively is essential.
Investing in blue chip mutual funds is a solid option for individual investors seeking stability and renowned companies. These funds focus on financially strong, established companies, providing potential for steady growth and dividends.
Large-cap funds invest in stocks with higher market capitalisation, and blue chip funds invest in stocks of well-reputed, established large-cap companies.
Here are some of the best blue chip funds for the long-term based on 3Y CAGR:
1. Nippon India Large Cap Fund
2. JM Large Cap Fund
3. ICICI Pru Bluechip Fund
4. HDFC Top 100 Fund
5. Baroda BNP Paribas Large Cap Fund
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