Importance of blue-chip funds in your portfolio


As an investor, everyone is always searching for the best investment that promises high returns. Whether for their children’s education, retirement, a dream vacation, or simply achieving financial independence, they seek ways to maximise their returns while minimising their risks. Equity mutual funds are known to be highly lucrative, and investors usually turn towards them in hopes of earning high returns and growing their money faster.

Equity funds, which invest in stocks of various companies, are further sub categorised based on the size of the companies they invest in, such as small cap, mid cap, and large cap. Small cap and mid cap funds can offer high growth potentials but with an equally high risk. This is where adding blue-chip funds in your portfolio becomes important, not just to mitigate market volatility, but also to add stability.

Most financial advisors and fund houses use blue-chip as a synonym of large cap mutual funds as they both refer to funds investing in stocks of well-established companies with high market capitalisation. Having blue chip funds in your portfolio can protect you from market risk and add long-term value to your overall investment strategy. Let’s find out how.

  • Regular dividends and bonus shares

Most blue-chip companies have a sizable market cap and have huge cash reserves, which allows them to pay out consistent dividends to their shareholders. Not only is this a reliable source of income for investors, but it also reflects that the company is financially healthy and has a long-term growth potential.

Blue-chip funds also offer bonus shares (additional shares) to shareholders at no cost. This helps you boost your investment value without buying new shares or investing more money.

  • Liquidity in the market

When you invest in mutual funds, liquidity is crucial, especially during volatile periods. Blue-chip funds are some of the largest mutual funds in the market, which means they have many buyers and sellers willing to trade at all times. So, there is an active market for these funds most of the time to buy and sell, even during market volatility. Their high liquidity makes them beneficial for investors who require quick access to cash.

  • Strong analyst coverage

Blue-chip companies are established businesses with a proven track record of strong earnings and revenue growth. They are large companies with well-known brands and have been in business for many years, experiencing different economic cycles. Therefore, such companies are closely tracked by experts, financial analysts, and fund managers. This means investors have huge data on company financials, cash flow, and future prospects, which further help to predict their mutual fund returns better.

  • Weather market volatility through diversification

Every investor knows that the stock market can be volatile, and investing solely in one company’s stocks can be risky. A way to mitigate risk in your mutual fund portfolio is through diversification which can be achieved through blue-chip funds.

With one single fund, you get exposure to stable and proven publicly traded companies operating across different sectors with a significant market capitalization. These attributes make blue chip stocks less prone to sudden market fluctuations and reduce the impact of market volatility in your portfolio. 

Ending notes 

With diversification, bright future prospects, and protection from market volatility as its key features, having blue chip funds in your investment portfolio can be a wise decision. But as an investor, you should first research different types of mutual funds and read the related documents to understand their objectives, cost structure, and fund managers. This helps you decide if the fund you are going to invest in is suitable for your risk appetite and has the potential to meet your financial goals.

While self-research can help you invest wisely, it’s also beneficial to take financial guidance from time to time to develop an optimised investment strategy. With their help and ongoing support, you can better understand the changing market dynamics and keep your investment portfolio aligned with your financial goals.

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