What is blue chip fund & how does it work?

Blue chip companies are well-established, large-sized companies with a good market reputation and a history of strong stock market performance. Mutual Funds that invest money in the stocks of such companies are called 'Blue Chip Funds'.

Benefits of investing in Blue Chip Funds

• Lower Risk: You get to invest in well-established companies with a strong financial track record through this fund.
• Stability and reliability: These funds provide stable returns even during market fluctuations.
• Regular dividends: Many Blue Chip companies pay steady dividends. As a result, you are also likely to get regular income from Blue Chip Funds.
• Diversification: Spread investments across multiple sectors and industries through blue chip companies doing various businesses.
• Long-term growth potential: Suitable for building wealth over time due to the long-term growth of blue chip companies.
• Liquidity: You can easily buy or sell units when needed, due to their strong market reputation.
• Transparency: Get clear and regular updates about fund performance.
• Ideal for first-time investors: This low-risk option with stable returns is suitable for beginner investors.

Taxation on Blue Chip Mutual Funds

Blue Chip Funds are classified as Equity-oriented Mutual Funds because majority of their investment is in equity shares.

• Short-term capital gains: Gains from units held for less than 1 year are taxed at 20%.
• Long-term capital gains: Gains from units held for more than 1 year are tax-free up to ₹1.25 lakh. Taxable gains are taxed at 12.5% without indexation.
• Dividends: Dividends are taxed as per your regular income tax slabs.

Challenges of investing in Blue Chip Mutual Funds in India

• Market dependence: These funds are expose to market risk and their performance in volatile in nature.
• Limited aggressive growth: These funds prefer stability over rapid growth, which may not suit investors looking for high returns. You can see significant declines during severe economic downturns.

What is the broader investment objective of a Blue Chip Fund?

Bluechip funds aim to provide stable returns, long-term capital growth, and consistent income by investing in large, financially strong, and well-established companies.

How does a Blue Chip Fund rank on safety?

Blue Chip Funds are considered safe compared to other funds like small and midcap funds because they invest in highly reputed and well-established companies.

Who should consider investing in a Blue Chip Fund?

You should consider investing in Bluechip funds if you:

• Prefer stable and relatively low-risk investments.
• Want long-term capital growth with steady returns.
• Are a first-time or beginner investor in Mutual Funds.
• Want to invest in large, well-established companies only.

How to choose the best Blue Chip Mutual Fund?

• Performance history: Look for consistent performance over the past 3–5 years.
• Fund manager’s track record: Consider the experience and reputation of the fund manager.
• Expense ratio: Choose funds with a low expense ratio to maximize returns.

Also Read: Mutual funds vs Stocks: Exploring the differences

Conclusion

Blue Chip Funds allow you to invest in the top well-performing companies in the market without devoting your time to researching stocks and managing the funds. Make sure you consider factors like expense ratio and risk profile before investing.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.