What’s an Investment Without a Blue Chip?
There are several types of mutual funds and one of these is the blue-chip plans that are able to withstand adverse volatility. Moreover, such funds are able to deliver higher returns when the market conditions are favorable.
In most cases, organizations that are classified as blue-chip companies are dominant and premium within their industries. These companies have long records to yield consistent dividends over the long-term.
Why blue-chip funds are good investments?
Blue chip comprises established organizations that deliver stable returns to the investors. Therefore, investors are safeguarded against economic downturns, recession, and inflation. The companies deliver consistent returns year after year over a longer period of time giving a stable debt-equity ratio. Moreover, the return on equity (ROE), interest coverage, and the price-earnings ratio (P/E) are steady. Therefore, blue-chip companies ensure investors earn stable and regular income. They are a type of equity funds. These organizations have excellent management teams, a sturdy balance sheet, strong financial positions, and stable growth, which make blue-chip funds an excellent investment option.
Objective of blue-chip funds
These types of funds invest in financially sound and well-established companies. The corpus is invested in companies with reliable track records, strong financials, and is profitable and providing regular dividends and delivering higher returns to the investors. The net asset value (NAV) of these funds usually moves within the same range but provides growth through the financial expansion of the blue-chip companies held within its portfolio.
The primary objective is to ensure that investors are able to endure market volatility through investments in blue-chip companies. During adverse market conditions, most of these funds are able to perform better indicative of their stability and growth. Therefore, investors are assured of reliability.
Here is how a blue-chip mutual fund reduces investment risk:
The companies in which these funds invest are industry leaders and have stable incomes and profits. In the case of an economic downturn, such companies provide security to investors. Moreover, stable profits and consistent growth delivered by experienced and expert management teams ensure security even during economic slowdowns.
- Regular income
Historically, most of the blue-chip investments provide regular income through dividends to the investors. This is because the share prices of these companies do not have huge increases, which is compensated through periodic dividends. Therefore, over a longer period of time, blue-chip investors are able to enjoy regular income through dividends. Moreover, the regular income also safeguards investors against the effects of inflationary pressure.
Who must invest in blue-chip funds?
These funds are ideal for investors who want to benefit from higher returns on their capital investment while generating periodic income through regular dividends. These are also beneficial to build retirement corpus because they deliver excellent returns over the long-term. It is commonly seen that affluent investors willing to make expensive investments opt for these types of funds.
Most of these funds are expensive and investors are advised to understand their valuations before making investment decisions. It is recommended to include these funds within the overall investment portfolio. However, investors must also diversify their portfolios through mid-cap and small-cap funds. Blue chip funds deliver steady returns that are not very high, which may be compensated through other investments. Investors who are willing to assume higher or moderate risks may invest in various funds across different sectors to achieve further diversification.
It is important to have a longer investment horizon when considering investing in such types of mutual funds. Most experts recommend staying invested for at least seven years to maximize returns on such investments.