How Good Are The Blue Chip Funds?

In the deep blue ocean of the Indian stock market, where volatility reigns supreme, investors often seek safe harbours. In such a scenario, can blue chip mutual funds emerge as a promising option for delivering better risk-adjusted growth? Vardan Pandhare explores

- Vardan Pandhare

In mutual fund investments, one term that resonates strongly with investors looking for stability, growth and reliability is 'blue chip funds'. These funds have marked a niche for themselves, attracting a wide variety of investors looking for long-term wealth creation with moderate risk. But before we move forward, let's understand how the term blue chip funds came into existence.

Origin of Blue Chip Funds

The term 'blue chip' originated in 1923, coined by Oliver Gingold, an employee at Dow Jones. Gingold noticed stocks trading at USD 200 or more per share while observing the stock ticker at a brokerage firm. He referred to these stocks as "blue chip stocks" and wrote articles about them, leading to the term's widespread use. Initially denoting high-priced stocks, blue chip now commonly refers to stocks of high market capitalisation and better quality.

Blue chip funds are equity mutual funds that specialise in investing in stocks of companies with substantial market capitalisation, representing stalwart entities with a proven track record of consistent performance. While there's no official category by the Securities and Exchange Board of India (SEBI) dedicated to blue chip funds, they are commonly associated with large-cap funds, reflecting their focus on established players in the market.

It is worth noting that some mutual fund schemes incorporate blue chip in their names, often accompanied by 'emerging". These schemes typically blend large-cap and mid-cap strategies. SEBI's guidelines mandate that large-cap funds allocate a significant portion, at least 80 per cent, of their corpus to shares of the top 100 companies based on market capitalisation. This aligns closely with the investment strategy of blue chip funds, which also target the top 100 companies to build their portfolio.

Working of Blue Chip Funds