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Blue Chip Funds

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A blue-chip mutual fund is the one that invests in blue-chip stocks or shares, i.e. in well-established companies with excellent 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 the year 1923. This term came into practice 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 term ‘blue-chip’ came into existence. Since then the term is 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 reflects in their outcome of sales, profitability, and dividends. In a nutshell, every blue-chip company’s stock makes the safest and the most reliable investment options. 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 allow investors to benefit from the financial growth of blue-chip companies.

Blue-chip mutual funds invest mostly in blue-chip stocks. For diversification, these funds can invest in mid-cap stocks, bonds and cash equivalents.
Younger investors can bear the risk factor that comes with investing in stocks as they have a longer investment horizon. Hence, they can have a more significant portion of their portfolio invested in stocks and equities. 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, and Ranbaxy.

 

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 proof that sometimes, even big companies can fail.

 

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