Investing in mutual funds is an effective way of laying a foundation for your financial future. With a combination of different stocks, bonds, and other securities, they offer you the opportunity to access returns that could potentially be higher than many individual investments offer. From equity, debt to hybrid and solution-oriented schemes, you can choose from different types of mutual funds based on your age, risk profile, income, expenses, goals, liabilities.
One type of mutual fund that plays an integral part in any investment strategy is a blue chip fund. Most fund houses and mutual fund advisors use blue chip funds and large cap mutual funds interchangeably as they include stocks from well established companies having large market capitalisations offering a combination of diversification, stability, income potential, and growth potential.
Read on to learn more about why investing in blue chip stocks is such a smart move for both high risk and risk averse investors and why it should form part of a well-diversified investment plan.
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Better standards of corporate governance
With blue chip stocks, you are not only buying shares of large, well-established companies that can potentially deliver consistent gains but also positioning yourself to benefit from their strict corporate governance practices.
These companies also have highly skilled teams having years of experience within the company and their respective industry leading them. This helps ensure that even during volatile times, they are well prepared for any instability in the market, thus boosting investor confidence in their investments.
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Offer regular dividends and bonus shares
Blue chip companies usually offer regular dividend payments and bonus shares that help investors generate additional income along with appreciation of their investment’s value.
Dividend payments usually come from the company’s profits and are paid out to shareholders on a regular basis, usually once per quarter. Bonus shares are additional shares that the company issues to its existing shareholders. These two components make blue chip funds an effective long term wealth building strategy for investors.
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Diversification opportunities
Investing in a single blue-chip fund provides you with exposure to multiple industries and sectors, which helps diversify your portfolio and reduce risk by spreading out your holdings across different assets and securities. Even if one sector experiences a downturn, you could still balance the risk from other sectors due to its diversified nature. Also, these stocks often represent large global companies with operations across different countries, providing an additional layer of diversification to your mutual fund portfolio.
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High return potential due to financial stability and large distribution network
Blue chip stocks tend to be more stable than small and mid-cap stocks because they comprise companies with strong fundamentals, thus reducing their volatility. You can expect steady returns on your investment over time, as opposed to more volatile investments that may experience sharp fluctuations due to market conditions.
Since these are equity mutual funds, they also offer potential for capital appreciation. Thus, your investment value could increase over time due to factors such as company growth or increased demand for its products or services.
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Abundance of independent research, financial reports, and market data
Analysing blue chip investments is relatively easy as there is plenty of information available on company financials and market data. Investors have access to an extensive database detailing organisational performance and accounting documents, as well as strategic industry reports from reputable consultants and sources.
Furthermore, extensive media coverage on the blue-chip sector helps investors make strategic and well researched decisions by staying up to date on developments in specific stocks and their respective industries.
Final words
With features such as high-quality stocks, easy liquidity, credibility, and strong fundamentals, adding blue chip funds in your portfolio can be beneficial. You can easily invest in these funds through digital platforms and mutual fund investment apps. Both lump sum and SIP (systematic investment plans) are available for investing, but SIP can be helpful to capitalise on the stability and long-term profit of blue chip funds. This is because, with every SIP instalment, you get an opportunity for diversification which is important for a well-balanced portfolio and long term growth.