Mutual fund investments are popular among investors because of the multiple benefits they provide. There are many types of mutual funds that can help you achieve your financial goals. These can be broadly categorized based on the risks involved and their investment traits.
This article mainly talks about bluechip funds and the top reasons to invest in them.
What is a mutual fund?
Mutual fund refers to a pool of money collected from different investors, which are invested in company bonds, shares or stocks. A bluechip mutual fund is one that invests in stocks or shares of those companies that have a credible track record with good overall financial performance.
What are the top reasons to invest in bluechip mutual funds?
Following are some reasons that justify the benefits of having a portfolio comprising of bluechip funds:
- Consistent returns
Bluechip companies have a stable earnings growth rate, which leads to an increase in investor confidence. These companies haverobustmanagement with a high degree of integrity that runstheir businesses. So, those looking for a mix of income, safety and modest capital appreciation can include bluechip mutual funds in their balanced fund portfolio holdings.
- Financially sound
Typically, bluechip companies have a lower debt ratio. This means they rely on their extensivecapital base to generate returns from their business. These are some of the largest companies belonging to different industry verticals, known for their financial strength. A low equity-to-debt ratio reduces the risk of investing in such mutual funds. Additionally, it also lowers the volatility in stock prices.
- Timely payment of dividend
Unlike smaller companies, bluechip companies share their profits generously with their shareholders. At the same time, they set aside some reserves to meet their future capital needs. These companies do not compromise on the dividend payout for growing their capital. Hence, mutual funds investing in bluechip companies receive high dividend returns compared to others.
- Diversification of risk
Bluechip companies are known for their diversified portfolio. They typically invest in a business with a broaddemographic base and multiple streams of revenue. Thus, it adds more value to your portfolio if you are risk-averse. Take the example of Hindustan Unilever. It is a diversified FMCG player into cosmetics, personal care/hygiene, food and beverages, etc. These multiple revenue sources help the company to moderate risks, which in turn can benefit you.
- Strong goodwill
Bluechip companies have a strong presence in the everyday lives of people. Take the instance of companies such as Reliance Industries, Procter & Gamble and Infosys. These companies have built a powerful reputation with their trusted products in the market. They have a competitive edge over new entrants. They remain market leaders due to their distribution advantage, cost efficiency and franchise availability. Moreover, most of these companies also feature in the Fortune 500 list.
- Lesser frauds or scams
Some large organisations such as Satyam and Enron were involvedin massive scams that syphoned off investors’ money and eroded their trust. Even though it is not entirely possible to rule out such future instances, scams are fewer among bluechip companies. Since most of these companies are well governed, even if an issue were to occur, it can be controlled before the organisation and investors are affected.
Conclusion
Unlike liquid funds, which are ideal for short-term investors, bluechip funds can provide long-term opportunities if you stay invested for five to seven years. They pay regular dividends and are well regulated and governed.