What is Blue Chip Fund?

When you invest in the mutual fund market, you have a medium-to-long-term goal in mind. Because there is a diversity of schemes available, you can pick the one(s) that best meets your goals. For many investors, stable returns is a priority as opposed to, say, high returns that come with high risk. If you belong to this category, blue-chip mutual funds (MF) are the right fit for you.

So, what is a blue-chip mutual fund and what are its advantages? These are essentially large-cap funds that promise steady returns at all times. Let’s get down to the details of blue-chip MFs in this article.

What are blue-chip funds?

So, what is a blue-chip company? A blue-chip company is one that enjoys wide acclamation for its products and services. Its excellent performance reflects its profitability. As a result, its stocks are the safest and the least volatile to invest in.

A blue-chip mutual fund makes investments in blue-chip stocks, i.e., in companies with excellent financial performance. These funds are ideal for investors looking for less volatility and more stability.

How do they work?

Investors who purchase blue-chip funds benefit from the financial growth of blue-chip companies. For purposes of risk diversification, blue-chip funds may be invested in bonds, mid-cap stocks, and cash equivalents. Young investors can choose to invest in stocks as the long investment horizon balances out the risk. On the other hand, older investors can rake the safe route by investing in bonds or cash.

Features of a blue-chip fund

Listed below are some of the top features of a blue-chip mutual fund –

• High credit-worthiness

Shares of blue-chip stock companies are high in credit-worthiness. This is because these companies usually have sufficient capital to clear their financial obligations easily.

• Low risk

Investing in blue-chip stocks offers investors the dual risk benefit. Firstly, the stable financial performance of these companies ensures that their stocks are not easily affected by market volatility. And secondly, since these companies naturally diversify their risk by generating revenue from different channels, investors are further cushioned against unfavourable market conditions.

• Investment horizon

Blue-chip mutual funds usually have an investment horizon that goes beyond 7 years. This makes these funds perfect for meeting long-term financial goals.

• Steady growth prospect

Blue-chip stocks grow in valuation at a slow but steady pace. This is because these companies have typically reached or are nearing their growth potential. This translates to assured returns for investors

• Taxation

Section 80 C of the Income Tax Act, 1961, treats the gains generated from blue-chip funds as income. As a result, the short-term capital gains are taxed at a flat rate of 15%. On the other hand, long-term capital gains that exceed Rs. 10 lakhs are subject to taxation at the rate of 10%.

Types Of Blue Chip Funds In India

Blue chip companies fall into the following categories in India:

• Large Cap Funds: These include funds that invest in the top 100 companies on the BSE and the NSE.
• Index Funds: These are passive funds that don’t try to beat the market but aim to earn like an index does. For instance, if the Nifty earned 22.7% returns in 2024, then an index fund would give the same since its portfolio is created similarly to an index fund.

Additional Read: Everything About Blue Chip Stocks

Advantages of investing in blue-chip funds

• Stable and steady returns

Blue-chip stocks remain unaffected even by severe market fluctuations. Since they are typically well-performing stocks, you will receive stable and steady returns on your portfolio.

• Ideal for post-retirement planning

These mutual funds come with an investment horizon of over 7 years. As a result, blue-chip funds are ideal for achieving long-term financial goals such as post-retirement planning. You can also build a healthy corpus for your child’s education, their wedding, and more.

• Benefit of portfolio diversification

Since blue-chip fund companies are generally established business organisations, their revenue is not generated from a single channel. As a result, these companies are able to cushion themselves against potential losses, and their investors are able to diversify risk for stable returns.

• High liquidity

By virtue of their performance, blue-chip fund companies enjoy high credit-worthiness in the market. This makes their stocks an attractive option for investors. As a result, stocks of such companies can be purchased and sold easily, offering investors high levels of liquidity.

What are some top blue-chip stock companies in the market today?

Given below is a list of some of the top blue-chip companies in the market today –

• Reliance Industries Ltd.
• Tata Consultancy Services Ltd.
• Hindustan Unilever Ltd.
• Infosys Ltd.
• ICICI Bank Ltd.
• HCL Technologies Ltd.
• Titan Company Ltd.
• Larsen & Toubro Ltd.
• HDFC Bank Ltd.
• Axis Bank Ltd.
• Asian Paints Ltd.

Safety considerations for blue-chip stocks

Though it is true that blue-chip companies are highly resilient against market volatility, it is still important to remember that this may not always be the case. Exception to the rule as they maybe, there have been companies such as General Motors and Lehman Brothers that were declared bankrupt during the Great Recession of 2008. So, it does well to do thorough research before you choose a blue-chip mutual fund.

Taxation On Blue Chip Fund

Blue chip funds are taxed as follows:

• Short Term Capital Gains (STCG): This is applicable if you sell your investments within a year of buying them.
• Long Term Capital Gains (LTCG): This is applicable if you hold your investments for more than one year.

Factors to consider before investing in blue-chip funds

If you are planning to invest in blue-chip mutual funds, keep the following things in mind to make lucrative investments –

Track record of the fund –

Though the future cannot be predicted down to the last detail, you can still be assured that a fund that has been consistently performing well belongs to a company that handles money wisely.

Expense ratio –

This is the cost you pay to own a blue-chip fund. Keep this in mind before choose a fund because it impacts returns – the higher the returns, the higher will be the expense ratio.

Our investment objective and strategy –

You must ensure that the blue-chip fund you’re investing in meets your investment goals and strategy. Find out the risk level involved, the proportion in which the net assets are invested, and more.

FAQs on Blue Chip Mutual Fund

Is Blue chip Fund Vulnerable to Safety Concerns?

Blue chip funds are not very vulnerable to safety concerns as these invest in established companies that have a proven track record. That said, they do carry a certain degree of risk, like all investments.

Is the best blue chip mutual fund safe?

Yes, the best blue chip mutual fund is typically safe as it invests in established companies that have a proven track record. However, like all investments, blue chip companies do carry a certain degree of risk.

What is the difference between a large-cap fund and a blue chip fund?

A large-cap fund is one that invests in stocks of companies that have a large market capitalisation. Blue chip funds invest in stocks of companies that are well-established and have a proven track record.

How do you know if a company is a blue chip company?

A company is considered a blue chip company if it is well-established and has a proven track record.

Which is better, flexi-Cap or blue chip fund?

Choosing between a flexi-cap and blue chip fund depends entirely on your unique investment goals and risk appetite. While flexi-cap funds offer flexibility across market caps and are ideal for diversified portfolios, blue chip funds invest in well-established, large-cap companies that provide stability.