Why a Blue-chip Fund Should be Part of Your Core Portfolio?

A Blue-chip Fund predominantly invests in large companies. The capital market regulator defines large companies as the first 100 companies on a full market capitalisation basis. Hence, a Blue-chip Fund is also referred to as a ‘Large-cap Fund’. As per regulation, a Large-cap Fund is required to invest a minimum of 80% in equity & equity-related instruments of large-cap stocks.

The broader investment objective of a Blue-chip Fund is capital appreciation (i.e. outperforming its benchmark index) by investing in a diversified portfolio of equity and equity-related securities of large-cap companies. However, since mutual fund investments are subject to market risks, don’t go by past performance alone as an indicator for future returns.

A Blue-chip Fund is considered to be relatively safe among equity-oriented funds in comparison to large & mid-cap funds, focussed equity funds, small-cap funds and sector/thematic funds. A Blue-chip or a Large-cap Fund tends to withstand market volatility betterin comparison to other equity-oriented mutual funds because it invests in large-cap companies. And as mentioned above, large-cap companies have an inherent competitive advantage. Due to this, the fund can handle economic shocks better and generate relatively steady returns.

Investing in equity and equity-oriented mutual funds is an effective tool for long-term wealth creation. When you invest, it is important to select mutual fund schemes basis your risk profile, investment objective, and the time horizon needed for realising your financial goal/s.

Ideally, a Blue-chip Fund should be a part of every equity investors’ core holdings. Having said that, if you are an investor looking at growth and stability, along with capital appreciation, then it is the appropriate investment for you. It can arrest the downside risk better compared to pure small-cap or mid-cap funds, in the event of the equity markets turning turbulent. But remember that your investment time horizon should be at least 5 years. Hence, consider a Blue-chip Fund while planning for your long-term financial goals.

To pick the best Blue-chip or Large-cap Fund, evaluate the schemes on parameters such as returns, risk ratios, performance across market phases (i.e. bull and bear phases), expense ratio, fund manager’s experience, and investment process and systems followed at the mutual fund house, among others.