Generally, investors begin their mutual funds investment journey with specific goals and return expectations. Whether it is to build a retirement corpus, fund a dream vacation, save up for a home purchase, or build wealth, they have options to choose from different types of mutual funds available carrying different risk and return potentials.
There are also investors who prioritise a combination of capital appreciation with stability, low risk, and diversification. If you also fall under this category, incorporating a blue-chip fund into your mutual fund portfolio might serve your investment objectives better. Read on to learn more about how a blue-chip fund can add significant value to your mutual fund portfolio.
What is a blue-chip fund?
A blue-chip fund is a type of mutual fund that invests in stocks from large and well-established companies. These companies are typically leaders in their respective industries and have established track records of consistent growth and profitability. Blue chip stocks tend to be less volatile because these companies have strong balance sheets, stable cash flows, and a long history of successful operations. It is noteworthy to mention that it’s not an officially categorised investment option in India and the term ‘blue chip’ is used as a reference to large cap mutual funds. So, generally a blue-chip stock is an open ended equity scheme that primarily invests in a large-cap stock.
Benefits of adding a blue-chip fund to your mutual fund portfolio
- Stability and portfolio protection from market volatility
Large, well-established companies are more stable than mid and small companies because they have been around longer and can leverage their proven track record and significant market share. Thus, they are less susceptible to drastic market fluctuations or industry trends and can handle economic downturns more proficiently.
Additionally, big companies often have more cash reserves than their smaller counterparts, which positions them better for weathering difficult economic times. Blue-chip funds offer access to these types of large, stable firms, giving you a sense of certainty that your investments can remain relatively secure even if the markets experience volatility.
- Large companies generally have expert corporate governance and protocols
Blue-chip companies generally follow strict corporate governance protocols. The larger the company, the more likely it has robust systems in place for corporate governance. Large-cap companies often employ highly experienced executives with years of expertise in managing complex organisations. Additionally, their boards of directors often include individuals from diverse backgrounds who have deep knowledge about the industry and its players. Thus, investing in a blue-chip fund gives you access to these experienced leaders so that you can benefit from their insight when making your investment decisions.
- A diversified mutual fund portfolio for long-term goals
Investing in a blue-chip fund can be an effective way to reach long-term goals like building a retirement fund or saving for children’s higher education. These funds generally invest in the top 100 companies listed on stock exchanges based on their market capitalization. So, diversifying your investments between these companies can gain you access to a broad range of industries and sectors. This means when one sector or industry experiences a downturn, you may experience balanced results or even profit from growth in another sector.
Final words
While you can instantly invest in blue-chip funds with digital methods, knowing how to construct your mutual fund portfolio with these funds is essential. As any responsible investor, you should research and create an investment plan by considering your personal goals, risk appetite, financial resources, and approach before investing. Also, once you have made an investment in mutual funds, it would be wise to stay invested for the long term in order to gain maximum benefits from compounding.