What are blue-chip funds?

Blue-chip funds have gained immense popularity in recent years. This is due to the prevailing risk aversion among market players. But, what are blue-chip funds? Do they have official approval from SEBI? Are they worth the investment? If you too have such questions in mind, continue reading as we help you understand more about this category of mutual funds. 

Defining blue-chip funds

As per SEBI norms, there is no official category for blue-chip mutual funds. Many fund advisors and companies use the term blue-chip synonymously for large-cap funds. A blue-chip fund is one of the best schemes to help you fulfill your financial goals and achieve economic development. It is an equity plan that provides investors the possibility to create wealth.

Blue-chip funds mostly invest in large companies. Their returns help in balancing an investor’s portfolio. Moreover, the scheme can deliver high profits while negating the losses investors might make. 

Features of a blue-chip fund

A blue-chip fund is also called a growth fund. It has the following features:

1. Consistent returns

Every investor wants their funds to provide consistency in profits. It is a vital factor as it stabilizes their finances. Blue-chip mutual funds are schemes that strengthen the financial stability of an investor by providing assured returns. 

2. Creditworthiness

Since blue-chip companies have adequate capital to manage their debts and obligations easily, the shares issued by them are high in creditworthiness. 

3. Growth prospect

These large blue-chip companies have reached their maximum growth potential. As a result, it influences the growth of shares, making it slow yet steady over time. 

4. Risk

Blue-chip stocks are issued by big companies with stable financial performance. Consequently, the risk associated with these companies is a lot lesser. Investors can further reduce the risk by maintaining a diverse investment portfolio. 

5. Investment horizon

Blue-chip mutual funds have an investment tenure of more than seven years. Such a long tenure makes the funds suitable for achieving long-term financial goals, such as children’s education, retirement planning, etc. 

6. Taxation

The profits from blue-chip funds are recognized as income under Section 80C of the Income Tax Act. Long-term capital gains up to Rs. 1 lakh are tax-free. The gains above Rs. 1 lakh are taxed at 10%. Short-term capital gains are taxed at the rate of 15%. 

Who should invest in blue-chip funds?

In India, blue-chip funds are desirable investment schemes for meeting long-term financial requirements. The fund facilitates corpus building and portfolio diversification. It cushions the impact of inflation, recession, and economic stagnation. 

You can start investing in blue-chip funds in just a few minutes using the Tata Capital Moneyfy App.

Summing up

Blue-chip mutual funds are on the costly side. So, before you invest in them, you must know their value. Investors should add blue-chip funds to their portfolios but refrain from making your entire portfolio from them.

It is wise to invest in a diverse portfolio instead of investing in only blue-chip funds. Investors with a high-risk or moderate-risk appetite can have funds in various market capitalizations to add diversity to their portfolio with a proportion of blue-chip funds.