Mutual fund schemes that primarily invest in blue chip stocks are known as blue chip funds. A blue chip stock is not about high yields, but performance and pedigree throughout the years. This post tells you how blue chip funds work, features, benefits, things to consider before investing and if you should invest in them. Keep reading!
Blue Chip Funds (a synonym for large cap funds) are equity mutual funds. They invest in stocks of companies with large market capitalisation. These companies have a good track record over many years and are established in the market.
Also referred to as large cap funds, blue chip funds allocate at least 80% of the fund corpus to the top 100 stocks in India with regard to market capitalisation. This protects them from the market risks of mid and small-sized companies. Although large-cap stocks usually generate lower returns than small cap or mid cap stocks, they are associated with lower financial risk.
Large cap companies have a strong market position and a proven track record in terms of performance. They have the ability to offer steady capital appreciation and regular dividends. Individuals seeking low-risk equity exposure can consider investing in blue chip funds.
Here are some noteworthy benefits of investing in blue chip:
The following may consider investing in blue chip funds:
In case you think that these funds are a suitable investment option for you, visit Navi Mutual Fund and start investing with an amount as low as Rs. 500.
The following parameters must be kept in mind before investing in:
Blue chip funds are suitable for your long-term financial goals, such as retirement, child’s education and marriage. That said, before investing in these funds, make sure to consider your risk appetite as these schemes are associated with significant risk owing to the equity exposure.
Ans: Small-cap and mid-cap stocks usually generate higher returns than blue chip stocks. However, the underlying large cap stocks are less risky than small cap and mid cap stocks. This is because most blue chip companies have a significant market share, and they are able to deliver strong financial performance consistently.
Ans: When an investor sells the units of a blue chip fund before 1 year from the date of purchase, short term capital gains tax at the rate of 15% is levied on the realised returns.
On the other hand, when an investor redeems his/her units after 1 year, long term capital gains tax at the rate of 10% is imposed on the profits. Note that no tax is levied on long term capital gains of up to Rs. 1 lakh.
Ans: No, blue chip funds do not provide any tax benefits. However, ELSS funds offer a tax deduction of up to Rs. 1,50,000 per annum to its investors. Such a benefit is applicable under Section 80C of the Income Tax Act, 1961.
Ans: The investment time horizon of individuals depends upon the financial goals of investors. That said, keep in mind that one should stay invested for as long as possible to benefit from the power of compounding.
Ans: To compute the returns from blue chip funds, you can use a mutual funds return calculator for SIP and lump sum investments. Simply enter the investment amount, expected rate of return, and the period of investment. The online tool will display the estimated returns and the total value.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.