This article deals with what are Bluechip Mutual Funds, their advantages, and how to invest in them.
The term ‘blue-chip stock’ was inspired from the blue chips – the highest value token – used in a game of poker, in a way reflecting the high stake, high-risk nature of stock markets.
It is believed that an employee of a company that would eventually become Dow Jones, Oliver Gingold, coined the term in 1923 for stocks that were highly priced. However, over time the term has come to describe not just highly-priced stocks but also high-quality company stocks. These are stocks of companies that have shown consistent performance over a long period of time along with a good management track record and established themselves as leaders in their respective sectors.
In India, as per the financial regulator SEBI, large-cap stocks comprise the top 100 listed stocks by market capitalization. Examples of bluechip or large-cap companies in India are Reliance, TCS, Infosys, HUL, HDFC, ICICI Bank, SBI, ONGC, Sun Pharma, Maruti Suzuki, L&T, ITC, Bharti Airtel, among others.
What are bluechip funds?
Bluechip mutual funds are equity-oriented mutual funds that predominantly invest in large-cap stocks. According to SEBI guidelines, these funds are required to invest a minimum of 80% of their portfolio in the large-cap stocks while the remaining 20% is at the discretion of the fund manager and may be invested in mid and small-cap stocks.
These funds follow equity taxation guidelines wherein long-term capital gains up to Rs 1 lakh are tax-free for investments that are older than a year. Capital gains above Rs 1 lakh on such investments are taxed at 10%. Short-term capital gains made on investments held for less than a year are taxed at 15% plus applicable taxes.
Advantages of investing in Bluechip mutual funds
- Economic Moat: An economic moat refers to an advantage available to a company that gives them an edge over its competitors. Bluechip companies are among some of the largest and perhaps even the oldest companies listed on the stock exchanges. Some of these are also conglomerates with interests across sectors, often making them leaders in several sectors. With such rich and diverse experience in running a business or businesses, bluechip stocks are considered to be solid, dependable companies with good growth potential over multiple years. Therefore, bluechip funds, by association, enjoy the stability and growth potential of bluechip stocks.
- High Liquidity: These are open-ended funds that can be redeemed at any point in time. Since blue chips are the most widely traded stocks in the market, it is easier to sell and liquidate them. This makes bluechip funds some of the most liquid funds among all mutual funds. This can come in handy at the time of financial emergencies.
- Relatively Stable Returns, Comparatively Low Risk: Bluechip companies are well-established names with a good management track records. As mentioned earlier, companies of such size and stature often have a diversified line of business, making their top line relatively immune to sudden economic, political, regulatory, and other market-related changes. These advantages make such companies and, in turn, the bluechip funds, comparatively low-risk investments which aim to provide relatively stable returns.
- An Anchor to the Portfolio: Among all the market caps, large caps are comparatively less volatile. This makes these funds a good anchor in the portfolio providing it with stability and protection, especially during times of heavy market volatility.
How to invest?
There are two ways in which you can start your investment in bluechip mutual funds– lumpsum and SIP.
Investing via the lumpsum route would simply mean making a one-time investment, which can be topped up with subsequent investments at any point in the future. When investing via a SIP, you can accumulate a corpus over a period of time by investing small amounts at regular intervals, be it weekly, monthly, quarterly, half-yearly, or yearly.
Note: It is advisable to consult a financial expert or financial advisor before making investment decisions.
