Bluechip funds are gaining much traction in the stock market these days. Many financially intelligent investors are interested in discovering more about blue chip mutual funds. You’re probably wondering if investing in the bluechip fund is your right decision. If yes, keep reading to find out the basics of these funds, how to identify the best bluechip funds for you and things to keep in mind while investing in bluechip funds.
Key Takeaways
- Bluechip stocks are a relatively safer investment option with assured returns over time.
- Bluechip stocks are stocks of large-cap companies which fall under the top 100 companies based on their market capitalization.
- There are no tax benefits on Bluechip funds. Any return on investment earned with bluechip stocks is subject to tax deductions. These returns are considered income under section 80C of the income tax act.
Bluechip Funds Explained
Bluechip funds are shares of well-established large-cap companies less likely to be affected by market fluctuations. These are some of the most well-known companies in the country. They have an excellent track record over many years and even decades. Blue chip mutual funds are a collection of high returns stocks from these large-cap companies. One thing to note about these bluechip stocks is that they are not considered a mutual fund category under the Sebi guidelines; therefore, they are used synonymously with large-cap mutual funds. While researching bluechip funds, you might have come across names with ’emerging bluechip’ attached to them. This is done because these are upcoming large-cap companies. These things are important to note while researching for some of the best bluechip funds in the stock market.
Bluechip funds work by investing in the top 100 companies based on market capitalization. These funds benefit from high-performing companies that do not face a lot of market fluctuations. If you are an investor who is looking for a safe investment option or someone who is just starting their investment journey, then bluechip funds are great for you. Their well-known brand and liquidity make them even less unpredictable and more dependable for new investors. If they have a 5-7-year investment strategy, young investors looking for safer equities should invest in huge capital or bluechip stocks.
Did You Know?
In 1923, a Dow Jones employee named Oliver Gingold developed the term “Bluechip.” Gingold coined the term while noticing multiple stocks trading at $200.
Features of Bluechip Funds
- Bluechip funds offer stable returns: By now, it’s probably clear that bluechip funds offer a lot of stability for your investment in the stock market. This is because bluechip funds are stocks of large-cap companies, and their returns are generally more secure than mid-cap and small-cap companies. These companies are comparatively less vulnerable to the volatilities of the market.
- Blue chip mutual funds offer assured return on investment: Because of their excellent track records, these large-cap companies are everyone’s go-to while investing in the stock market. Because bluechip firms are well-known, you may rest confident that you will receive consistent and predictable returns.
- Bluechip funds have long-term investment: The companies in blue chip mutual funds have reached their full growth potential; therefore, if you want to see growth in bluechip funds, you will have to invest for a minimum of 7 years. This feature of bluechip funds makes them ideal for long-term investment.
- The bluechip fund is highly liquid: One feature of a bluechip fund is that it is highly liquid, making it highly attractive to some investors. You can go ahead and withdraw your fund anytime you wish. This feature makes it highly attractive to investors, especially during times of financial stress, since it relieves them from taking any debt.
Advantages of Investing in Bluechip Funds
Now that we have understood what bluechip funds are and how they operate let’s take a look at some of the advantages of investing in bluechip funds. Investing in bluechips funds has many advantages like high returns, portfolio diversification, etc.
- Bluechip funds are great for long-term investment. You can invest in bluechip funds to build a retirement fund, support your children’s further education, and so on. Blue chip mutual funds are suitable for long-term goals since the longer you wait, the more likely you will receive better returns.
- Bluechips are a great inclusion to your portfolio because they can add diversification to your portfolio, which is always a good idea for investors. Diversification can reduce your risks of big losses and improves your chances of making a decent profit.
- The impact of market volatility, such as downturn, hyperinflation, and stagnation of the economy, can be mitigated using blue chips.
- Bluechip corporations have a competitive edge over other companies in the same industries because they are huge, well-established, and have a long record of success. As a result, they have a sizable market share, allowing you to generate inflation-adjusted profits over time.
Tax Benefits of Investing in Bluechip Funds
Bluechip funds are a great option for investors who want to diversify their portfolios and make a profit in this highly competitive stock market. Whatever gains you make under the bluechip funds in India are considered income under the Income Tax act. This income I subject to tax deductions as well. Your returns have no tax benefits or tax exemptions under the bluechip funds. Long-term capital gains, or LTCG, are taxed at a rate of 10%, whereas short-term capital gains or STCG, are taxed at a rate of 15%. LTCG, on the other hand, is only taxed if the gains reach Rs. 1 lakh. They are tax-free up to a limit of Rs. 1 lakh. Individuals in India are not eligible for a tax deduction from long-term capital gains tax under Sections 80C through 80U. The full beneficial amount will be considered taxable income and subject to a 15% long-term capital gain tax.
Word to Remember
Simply put, hyperinflation is exceedingly fast inflation. In an economy, hyperinflation is a term used to describe a scenario in which the prices of all products and services grow uncontrolled over a set period.
Conclusion
Bluechip companies are large-cap stocks with a strong market reputation and a track record of consistent growth. They diversify market risks by generating income via different routes, making them a safer investment alternative for stock investors. Younger investors can typically handle the risk associated with investing a bigger portion of their portfolios in stocks, particularly blue chips. Still, older investors may want to focus on capital preservation by investing more in bonds and liquidity. Therefore, they have a strong brand, are easy to trade, and are very liquid.
FAQs
Because they both relate to equity mutual funds that invest in equities of large-cap businesses listed on stock exchanges, the terms ‘bluechip fund’ and ‘large-cap fund’ are interchangeable. Large capitalization funds and bluechip funds invest in large capitalization firms. According to SEBI’s classification, there is no formal category for bluechip mutual funds. Both are, however, used interchangeably.
Blue chip mutual funds are essentially a collection of stocks from large-cap companies. They usually have high returns and less risk associated with them. Bluechip mutual fund and an equity mutual fund are similar and are sometimes used synonymously.
There are primarily two ways of investing in bluechip mutual funds. You can either invest through SIPs or lump sum. SIPs invest small amounts of money every month. When compared to lumpsum, SIPs are more preferred options amongst investors.
No, Returns on your bluechip mutual fund’s investment are considered income under section 80C of the Income-tax act, and it is liable for tax deductions.
Bluechip funds provide numerous benefits, but they also have some drawbacks. Low returns, sluggish and stagnant growth and fewer returns characterize bluechip funds. They are not a good short-term investment idea.
Read more about Equity Fund.
