When you invest in mutual funds, you usually have small-, medium- or long-term goals along with some return expectations. Whether you are saving up to build wealth or aiming to create a large retirement corpus, there are different types of mutual funds available to help you accomplish your investment goals.
But for many investors, stability, low risk, and diversification are extremely important factors when selecting the right fund. If you also belong to this category, blue chip mutual funds could be ideal for you as they give you an opportunity to invest in stocks of companies with large market capitalisation.
But when should you invest in blue chip funds? Here is a detailed look at key considerations that can help you determine the ideal time frame for investing in these funds.
Understanding a blue chip fund
Blue chip funds are equity mutual funds that invest primarily in the stocks of well-established, reputable companies with a strong financial record. These stocks typically come from the top 100 largest companies listed in the stock market by market capitalization. This is why most financial advisors and fund companies often use bluechip as a synonym for large cap mutual funds.
Since SEBI (Securities and Exchange Board of India) mandates that at least 80% of the corpus of large-cap mutual funds should be allocated to investments in the top 100 companies, these funds are known for their diversification, stability, and resilience to market volatility.
So, when should you invest in blue chip funds?
- When you have a long investment horizon
Blue chip funds can be a great financial strategy if you have the time to build an investment portfolio sustainable for your long-term investment needs – such as building a retirement fund or saving for children’s higher education. Investing in blue chips early means the portfolio won’t suffer from temporary market fluctuations common with short-term investment strategies. Additionally, blue chip stocks generate steady dividend payments, which can help grow your portfolio year over year.
- When you want stability
Investing in blue chip funds gives you access to more stability than other types of investments. These stocks have shown consistent performance over time due to their regular dividend payments and bonus shares issuances. They tend to be large companies with well-established brands and products/services, so their stock prices rarely fluctuate dramatically. This makes them ideal for investors looking for safe investments without taking too much risk.
- When you want diversification
Investing in blue chip funds also allows you to diversify your portfolio across different sectors and industries. For example, if you buy a mutual fund that invests in different blue chip stocks, then these stocks represent different companies within different sectors or industries. This diversification helps minimise risk by ensuring that your portfolio will not be too heavily exposed to any particular industry or sector that could be subject to market volatility.
- When you prefer low monitoring
Investing in blue chip funds requires less regular monitoring once they have been purchased as their performance tends to remain steady over time. This means that you can free up your time for other activities, such as researching new investments or focusing on growing your business, instead of worrying about constantly monitoring the stock market for potential opportunities or risks.
- When you want liquidity
Being an open-ended equity scheme, a blue chip fund is a great investment opportunity for those who prefer liquidity. As these funds may be purchased or sold at any time, you can take advantage of the flexibility to make immediate adjustments to your mutual fund portfolio based on changing market conditions.
Blue chip stocks come with many benefits – from providing stability and diversification to offering steadier returns than various other investments – making them an ideal option for smart investors who want low risk but still want the potential for good returns. You can easily invest in a blue chip fund online; however, every investor is different and has their own investment goals, risk tolerance, income, and strategy. As such, it is important to craft a mutual fund investment portfolio strategy to ensure it aligns with your overall financial goals.