With the increasing awareness about mutual funds, the types of funds in India are also increasing. Blue chip funds are a popular type of mutual fund in India, that invests in well-established company shares which offer good performance history. A blue chip stock is one that has performed consistently well and, therefore, has been one of the most popular funds in the industry. The shares of these stocks are considered to be solid and reliable investments.
This article will dive deep into how you can choose your ideal blue chip fund.
What exactly is a Blue Chip fund?
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Thursday 09 Jan. 2025
A blue-chip mutual fund can be defined as an equity mutual fund that invests the pooled money in company sticks that have large market capitalisation. Such companies are well-established and boast a good track history of performance. Nevertheless, according to SEBI rules on the categorisation of mutual funds in India, we do not have an official blue chip fund category. Blue chip funds are therefore used as an alternative name for large-cap mutual funds.
For example, SBI Blue Chip Fund and Axis Blue Chip Fund are both large-cap equity mutual funds labelled as blue chip funds by their respective fund houses. As per SEBI mandate rules, large-cap mutual funds need to invest a minimum of 80% of their total investment corpus in equities of the top-ranking 100 organisations rated by market capitalisation. Blue chip mutual funds, which engage in the leading 100 firms, have a similar description.
This is good for younger investors as they can bear higher financial risks that come with investing in equity mutual funds. Since they generally have a longer tenure of investment, they can reap the maximum benefits of these funds. SBI Blue Chip Fund has a 3-year and 5-year annualised return rate of 17.5% and 12.40%, respectively. Axis Blue Chip Fund has a 3-year and 5-year annualised return rate of 13.16% and 13.99%, respectively.
How to choose your ideal Blue Chip fund?
This is how you can choose your ideal blue chip fund:
- Track the history of the AMC.
You need to check the track history of the asset management company before investing. If you invest in funds with a large AUM, this is a must.
- Investment style
Make sure the investment style that the fund manager is going with – growth, value or blend is comfortable with you.
- Ratio of expense
Keep the expense ratio of the fund in mind. SBI Blue Chip Fund has a current expense ratio of 0.90%. Axis Blue Chip Fund has an ongoing current expense ratio of 0.55%.
- Fund portfolio
Examine the investment portfolio carefully to obtain a sense of where the mutual fund will put your cash.
- Benchmark performance
You need to go over the previous performances of the fund over three and five years to understand how that fund has performed in comparison to its peers.
Why should you invest in a Blue Chip fund?
The benefits of blue chip funds are as follows:
- Financial goals
To attain your long-term financial objectives, you may want to invest some money in these blue chip mutual funds. For example, you may invest in blue chip mutual funds for the long term in order to purchase a property or prepare for retirement. Such schemes seek to achieve long-term capital appreciation by participating in a diverse range of large-cap company shares and equity-related securities.
- Capital growth
You might invest in these blue chip mutual funds to accumulate money over time. It enables you to invest in financially healthy organisations with a track history of success. Blue chip funds might be included in your main portfolio to provide stability in the face of a tumultuous stock market. Because they are equity mutual funds, they can also assist you in building wealth over time.
- Liquidity
Blue chip mutual funds are open-ended funds, and you can redeem units at any time. It allows you to leave the investment plan when you are under financial difficulty. You can also get a loan on blue chip mutual fund units.
- Economic moat
Blue chip companies are huge and may have an economic moat. This is a competitive edge that these firms have over competitors and peers. It equates to a large market share and allows you to generate profits that outperform inflation over time.
The bottom line:
Mutual funds have been a success story in India. The importance of choosing the right mutual fund cannot be stressed enough with the growing number of choices available to investors. As you can see, there is much to learn when it comes to choosing the right type of mutual fund for you.
The most striking feature of the blue-chip funds is that they invest in only well-established companies. For someone who is just looking to make money on their investment and has a high-risk profile, such funds are often an ideal choice. We hope this article has helped you narrow down your options and begin looking into the best blue chip funds in India.
