Why You Should Add Blue Chip Funds to Your Portfolio for Stability, Growth, and Income

Blue chip companies are known to dominate the stock market. These are well-established companies with years of market presence, profitability, and success. However, not all of us are comfortable with direct investments in the equity market. Plus, blue chip stocks generally cost a fortune. Instead, you can add blue chip stocks to your portfolio via the mutual fund route. Blue chip funds are equity funds that invest in the stocks of blue chip companies. If you’re wondering why you should invest in blue chip funds, this article is for you.

Blue chip funds are a type of equity mutual fund that only invests in stocks of large, well-established companies that have a proven track-record of profitability and success. These companies are often called ‘blue chip’ companies and therefore, the fund is called a blue chip fund. Blue chip funds are perceived as stable and safe investments because their portfolio includes stocks of companies that are financially stable and have a strong market presence. Blue chip companies also command a large market capitalisation and therefore, experience low volatility as compared to small-cap companies. However, according to market regulator, SEBI, blue chip funds are not an established category in India. Sometimes investors use ‘blue chip funds’ to connote large-cap funds, since large-cap funds invest in equities of the top 100 companies on the stock exchange in terms of market capitalisation. 

• Blue chip funds offer long-term growth and capital appreciation potential.
• These funds offer stability to your investment portfolio with steady returns.
• Blue chip funds also ensure portfolio diversification and easy liquidity benefits. 

Here’s a list of reasons why you should add blue chip funds to your investment portfolio:

Long-term growth potential

While blue chip funds may not grow at a rapid rate like small or mid-cap ones, they offer the benefit of a strong long-term growth potential. These funds invest in stocks of established companies with a good track record of performance and profitability, reliable earnings, and ability to weather market down-turns, ensuring steady returns for investors. This makes them ideal for steady long-term compounding growth. Therefore, blue chip funds are ideal for investors with long-term objectives like paying for your child’s education or retirement planning.

Also read: What Is Compound Annual Growth Rate (CAGR)

Diversification

Blue chip funds also offer the benefit of diversification to your portfolio. These funds invest in a diversified mix of the top-performing companies to reduce the overall risk quotient of the investment. Investing in blue chip funds allows you to benefit from the steady returns of these companies during market downturns.

Portfolio stability

Adding blue chip funds to your portfolio helps stablise returns. Since these funds invest in well-established companies that are less susceptible to the impact of market fluctuations, they tend to be less volatile than small and mid-cap funds. Since blue chip companies primarily sell essential goods and services, their product demand remains relatively stable even during economic downturns. This ensures consistent performance and steady returns even through fluctuating markets.

Liquidity

Investing in blue chip mutual fund schemes is prudent because your investment can be redeemed at any time. Unlike other equity funds like ELSS funds, blue chip funds do not have a mandatory lock-in period, allowing you to earn steady returns while maintaining easy access to your capital, whenever needed.

Steady dividend income

If you’re wondering why you should add blue chip funds to your portfolio, the answer is dividend income. Most blue chip stocks distribute regular dividends to their shareholders which means additional income for your mutual fund portfolio. You can either cash out these dividend payments with a dividend plan or reinvest them through a growth plan.

Good capital appreciation

Adding blue chip funds to your portfolio is also beneficial because these funds carry a good capital appreciation potential. Owing to the established market share, loyal customer base, and proven track-record of performance, blue chip companies command a competitive edge over their industry peers. This means investors can enjoy good inflation-adjusted returns over time.

Also read: What Is Systematic Withdrawal Plan (SWP)

Investing in mutual funds that primarily focus on blue chip stocks is ideal for investors who prefer steady returns and capital preservation. Long-term investors with a low-to-moderate risk appetite can add blue chip funds to their portfolios to minimise risk. Since blue chip funds invest in established companies, the impact of volatility on your portfolio’s returns remains minimal.

Blue chip funds present the unique opportunity of investing in some of the biggest companies in the country, across sectors and industries. These funds carry the potential for good long-term growth, offer steady returns, and are less susceptible to market fluctuations. While they are ideal for risk-averse investors, these reasons are valid enough to understand why you should add blue chip funds to your portfolio as well.

If you want to invest in large-cap funds that invest in blue chip companies, you can do so via the Bajaj Finserv Mutual Fund Platform. Here, you can compare mutual fund schemes of various large-cap funds and choose one that best aligns with your needs. Additionally, you can leverage the Mutual Fund Calculator tool to estimate returns and complete your portfolio accordingly.