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A blue chip fund is one that invests in blue chip stocks or shares, i.e. in well-established companies with good overall financial performance. In this article, we will learn more about blue chip funds, how they work and much more.

  1. Origin of Blue Chip
  2. What are Blue Chip funds?
  3. How does it work?
  4. Example of Blue Chip Stocks
  5. Blue Chip Safety Considerations

 

1. Origin of Blue Chip

Oliver Gingold, an employee at Dow Jones, coined the phrase ‘Blue Chip’ in 1923. This term came into vogue after Gingold, while standing near the stock ticker at a brokerage firm, noticed that several stocks traded at $200 or more per share. He called them ‘Blue Chip Stocks’ and wrote an article on them. That’s how the phrase was born. Since then the term has been used to refer to highly-priced stocks, but now it is used more commonly to refer to high-quality stocks.

 

2. What are Blue Chip funds?

Companies under blue chip funds are usually renowned brands which offer widely-acclaimed products and/or services and their performance reflect in their outcome of sales, profitability, and dividends. In a nutshell, every blue chip company’s stock makes the safest and the most reliable investments. And this is why these stocks are mostly less volatile as compared to the smaller players in the market and investors prefer them over the smaller companies for their stability.

A mutual fund investing in blue-chip stocks or shares is also known to be a growth fund.

 

3. How does it work?

Blue chip funds give investors the opportunity to benefit from the financial growth of the blue-chip companies.

Blue chip mutual funds are invested in blue chip stocks but they can also be invested outside that category, too. For the purpose of diversification, these funds can be invested in mid caps or bonds or cash.

Younger investors can bare the risk factor which comes with investments in stocks as they are looking at a wider investment horizon. So they can have a greater portion of their portfolio invested in stocks and equity. Older investors can have a safe approach and look for capital preservation by investing in bonds and cash.

 

4. Example of Blue Chip Stocks

Some of the leading Indian companies with blue chip stocks are Tata Consultancy Services, Bharti Airtel, State Bank of India, Infosys, Reliance Communications, ITC, Ranbaxy, etc.

 

5. Blue Chip Safety Considerations

As we know blue chip companies usually survive and perform well even during turbulent periods, that may not be the case all the time. The bankruptcies of major companies like General Motors and Lehman Brothers and many other leading bank companies during the Great Recession of 2008 is a proof that sometimes, even big can fail.

 

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