Blue-chip stocks are stocks of well-established large-sized companies that have strong financials and have been operational for many years. These belong to companies with market capitalization running in billions, often market leaders, or at least are one of the top three companies in their respective sector.
Here, we will learn more about blue-chip funds and stocks, explore various aspects surrounding this investment option.
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What are Blue Chip Stocks in India?
Blue chip stocks can cope better even during adverse market conditions and help investors to generate high returns. These often come for a premium since they belong to dominant companies within the industry. Blue-chip investment may also yield consistent dividends for investors in the long term.
Some important points to note about blue chip are:
- These companies mostly generate stable returns in the long run. Consistent returns in normal course protect investors against inflation, recession, and other market movements.
- Blue chip companies generally have a stable debt-to-equity ratio.
- The average return on investment, price to equity ratio, and the interest coverage ratio of such companies contribute to steady performance.
- These companies usually offer regular dividends to investors, thereby creating a regular source of income for investors.
Who should invest in Blue Chip Stocks?
Blue chip stocks are considered safe investment options, and they can also help investors in balancing the overall portfolio risk. However, the common assumption while making such an investment is that a company has diverse operations and may not be affected by fluctuations in the stock market. Even if a company’s financial performance is not as per expectations for some period, it can cover most of the losses incurred in a business function from its other business segments.
Such stocks are mostly preferred by cash-rich investors who have experience in making high-value investments.
Investors who do not want their investments to be affected by any major economic downturn can invest in blue chip stocks. While investors can expect income through dividend payouts from most of these stocks, it is advisable to ensure sufficient diversification of a portfolio to avoid any company-specific risks. Also, since most of the blue chip investment offer better returns in the long term, investors who are comfortable remaining invested for a 7-plus years time span must consider blue chip stocks.
What are the main features of Blue Chip Stocks?
Some of the key features of blue chip stocks are as listed below:
- Companies with an excellent financial track record
- A strong balance sheet
- Consistent growth rate
- Strong managerial team
Why invest in Blue Chip Stocks?
Some of the key traits that attract investors towards blue-chip stocks are as mentioned below:
- Superior returns: Since blue chip are industry leaders, they have higher chances of growth and therefore can deliver higher returns.
- Low Volatility: Blue Chip stocks are of companies that are financially sound with competent management & strong corporate governance practices. This makes the companies stable and less affected by market volatilities.
- Regular Income Through Dividends: Blue Chip investment belong to companies that have huge cash surplus and can offer regular dividends to the investors.
Best Blue Chip Funds and Stocks in India
Based on market capitalization, there are many blue chip companies in India whose stocks generate good to high returns in the long term. Here are the top 10 blue chip stocks as per performance track record:
- Indian Tobacco Company (ITC) Limited
- Hindustan Unilever Limited (HUL)
- Reliance Industries
- Tata Consultancy Services (TCS)
- Oil and Natural Gas Corporation (ONGC)
- Housing Development Finance Corporation (HDFC)
- Eicher Motors
- Sun Pharmaceuticals Industries Limited
- State Bank of India (SBI)
Some of the top-performing blue-chip funds are as mentioned below:
A Blue chip fund invests in established and financially stable companies. These funds invest in stocks of companies that are usually market leaders and have a credible track record. Companies that regularly pay dividends and have been profitable over the years form part of such funds.
Since funds are managed by experienced fund managers, it is often advisable for new investors to opt for blue chip funds instead of individually investing in blue chip stocks. This is because new investors may not always have the expertise of picking the right stocks for investment. Here are some of the top-performing blue-chip funds.
- Axis Bluechip Fund Direct Plan Growth
- Kotak Bluechip Growth Direct
- BNP Paribas Large Cap Fund Direct Plan Growth
- Edelweiss Large Cap Direct Plan Growth
- UTI Master Share Growth Option
- LIC MF Large Cap Fund Direct Plan Growth
How to Invest in Blue Chip Stocks India?
To invest in Blue Chip Stocks, an investor must have a Demat account. For a stock investment, investors can approach an online broking firm or offline broker. Here are the two modes to invest in blue chip stocks and funds:
- Ways to invest online-
- Blue Chip Funds – An investor can invest in Blue Chip funds online through platforms like Finity. The Finity app offers a seamless investment experience along with the ability to select a fund based on the investor’s risk profile, time horizon, etc. Investors can also invest directly through AMC websites if investing in blue chip funds.
- Blue Chip Stocks – Investing in blue chip stocks is similar to any other equity purchase/sale transaction. For this, an investor must have a Demat and trading account. An investor must then reach out to a registered online broker through their website to buy/sell a blue chip stock of selected company/companies.
- Ways to invest offline –
- Blue Chip Funds – This traditional mode of investment can be used by investors who are not comfortable with the online process. They need to fill a form and submit it at a branch of the fund house.
- Blue Chip Stocks – The requirement of Demat and trading accounts is applicable for offline investment as well. There are many registered offline brokers who can help with blue chip stock or fund investment.
While investing in blue chip stocks or funds, it’s essential to remember that these are mostly part of a buy-and-hold strategy and require a longer timeline for investment. These can form a valuable part of a well-diversified portfolio that should also include lower-risk investments such as bonds.
- Is it good to buy blue chip stocks?
Investing in Blue Chip stocks is ideal for investors who have a conservative risk approach and long-term goals with a time horizon of at least 5-7 years. Investors who are looking to grow their wealth in the long term without having exposure to a lot of risk and market volatility must consider investing in blue chip stocks.
- What are blue chip stocks?
A blue-chip stock belongs to a large corporation that has an excellent reputation. These companies are well-established and financially sound and have operated for many years. Blue chip stocks are also called large-cap stocks and often provide regular dividends to investors.
- Which Blue Chip Fund Should I invest in?
Some of the top performing blue chip funds can be found on the Finity app. Investors must always look at the historic performance of the fund before selecting one.
- What is the difference between blue chip and common stock?
Blue-chip companies are ones that have stood the test of time and have proven themselves through solid performance, even in volatile markets. Blue-chip stocks have large market capitalization. Market cap is used as a measure of the size and value of a company. Common stock represents the ownership of the investor in the corporation that it represents.