A blue-chip stock is a huge company with an excellent reputation. These are typically large, well-established, and financially sound companies that have operated for years and have dependable earnings. Blue-chip stocks are highly priced market stocks that have emerged as a preferred investment option over recent years.
A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is, more often than not, a household name. For all of these reasons, blue chip stocks are among the most popular to buy among investors.
Besides their reputation, such companies extend attractive, often paying dividends to investors. However, individuals should equip themselves with a few essential details before investing in blue-chip stocks.
Individuals can invest directly in Blue-chip stocks in India through Mutual Funds.
Features of Blue-chip Stocks–
Some of the key features of blue chip stocks are as listed below:
Assured Returns
Blue-chip stocks generate returns quarterly in the form of dividends. The well-established fact companies also serve as a safe investment avenue for most investors. With this safety comes the assurance of earning steady but guaranteed returns.
Credit-worthiness
Blue-chip companies have enough capital to clear their financial dues and obligations quickly. This, in turn, makes the shares issued by such companies high in creditworthiness.
Risk Factor
Since big companies with stable financial performance issue these stocks, the risk factor associated with blue-chip stocks are comparatively less. Investors can further reduce the burden of risk associated with blue-chip shares by diversifying their investment portfolio.
Investment Horizon
The term of investment is usually over seven years. Such an extended term makes Blue-chip stocks suitable for achieving long-term financial goals owing to their long investment horizon.
Growth Prospect
Blue-chip companies are those large companies that have reached their maximum growth potential. This influences the Blue-chip shares in India, which undergo slow but steady growth over time.
Taxation
The gains generated through blue-chip shares In India are treated as income under Section 80 C of the Income Tax Act. The short-term capital gains are subjected to taxation at 15%. However, long-term capital gains exceeding Rs. 1 Lakh are subjected to taxation at 10%.
Why invest in Blue Chip Stocks?
Blue-chip stocks in India are considered a desirable investment option for achieving long-term financial goals. Here are a few reasons to invest in Blue-chip shares –
- Superior returns: Since blue chip stocks are market leaders, they have high growth prospects and can deliver special returns.
- Low Volatility: Blue Chip stocks belong to financially sound and stable companies with competent management & corporate governance. This makes them stable and less volatile.
- Passive Income through Dividends: Blue Chip stocks have a huge cash surplus and provide regular dividends to investors.
Major Advantages of Investing In Blue-Chip Stocks
- Liquidity: Stocks of large-cap companies or blue-chip stocks are highly liquid, meaning they have a ready market in case you want to sell your investment. Blue-chip stocks are sought-after stocks in the market. You will always find it easy to find buyers for your stocks if you’re going to sell in case of an emergency or any other pressing situation.
- For stability: Blue-chip stocks are stable investments that do not fluctuate wildly, even during the most turbulent market conditions. If you are an investor who worries about losing money during market downfalls, you should invest in blue-chip stocks or large-cap companies. These stocks are also a great option for new investors because of the low volatility compared to mid-cap and small-cap stocks.
- Portfolio diversification: Even if you are an investor with a high-risk appetite, you should consider including blue-chip stocks in your portfolio. These stocks help you to diversify your investments.
- Meet long-term goals: Since blue-chip stocks are relatively stable and often provide regular dividends, they can help you easily meet your long-term financial goals. You can make a fair estimation of how the prices of these stocks will move in the long term. Using this estimation, you can plan your financial goals. You can add blue-chip stocks to a trust fund, a retirement fund, or for your child’s education planning.
Are blue chip stocks safe?
While a blue chip company may have survived several challenges and market cycles, leading to it being perceived as a safe investment, this may not always be the case. There are no stocks that guarantee the safety of an investment. On the other hand, blue-chip stocks are deemed less hazardous because they are the equities of well-established corporations that are less likely to go out of business during a recession.
The bankruptcies of General Motors and Lehman Brothers, as well as several leading European banks during the global recession of 2008, are proof that even the best companies may struggle during periods of extreme stress.
Are blue chip stocks a good investment?
Blue-chip stocks often have strong balance sheets, consistent cash flows, established business strategies, and a track record of rising dividends. As a result of their track records and performance histories, investors generally consider blue-chip stocks among the most secure stock investments.
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