Companies that issue blue chip stocks have a stable financial record and credibility. Investors can invest in blue chip stocks in India directly or through mutual funds.
Blue-chip stocks is a term associated with the stock market. Stocks issued by blue-chip companies, i.e. companies with large market capitalization are called blue-chip stocks. The companies issuing these stocks are well established and have great reputation in the market. This is why the stocks issued by them are highly valued in the market. Companies issuing blue-chip stocks have a stable financial record and credibility. Such companies make attractive dividend payments, which can be attributed to the growing popularity of that stock. Investors can invest in blue-chip stocks in India directly or through mutual funds.
Features of Blue-chip Stocks
Assured Returns: Blue-chip stocks offer quarterly returns in the form of dividends. Well-established companies also serve as a safe investment route for most investors. With this security comes the assurance of earning stable but guaranteed returns.
Credit-worthiness: Blue-chip companies have enough capital to easily repay their financial dues and obligations. This, in turn, makes the stocks issued by such companies have higher creditworthiness.
Risk Factors: Large companies with stable financial performance issue blue chip stocks. Hence, the risk factors associated with blue-chip stocks are comparatively low. According to Groww, investors can further reduce the risk burden associated with blue-chip stocks by diversifying their investment portfolio.
Investment Horizon: The investment period is usually more than 7 years. Such an extended period makes blue-chip stocks suitable for achieving long-term financial goals due to their long investment horizon.
Growth Potential: Blue-chip companies are large companies that have reached their maximum growth capacity. This impacts blue-chip stocks in India, which undergo slow but steady growth over time.
Taxes: Gains earned through blue-chip stocks are considered as income under Section 80C of the Income Tax Act. Short-term capital gains are taxable at the rate of 15%. However, long-term capital gains above Rs 1 lakh are taxable at the rate of 10%.
The right way to invest in blue chip stocks
Finding blue chip stocks to invest in is easy. For this, take the direct equity route. You can create a portfolio of the best blue chip stocks with proper advice from a broker and a financial advisor. This can be a complex process as you have to identify each stock and then add them to your portfolio. Here you get the benefit of direct participation.
You can also buy a large-cap equity fund or blue chip equity fund, which gives you indirect participation in a blue chip portfolio. According to ICICI Direct, this is a popular way to participate in blue chip stocks with the added benefits of professional management of money by the fund manager and diversification. Another way to create a portfolio of blue chip stocks is to buy index funds or index ETFs on Nifty or Sensex and take the passive route. Investing in blue chip stocks is more of an art than a science, but there are also simpler ways like equity funds and index ETFs. (source-indiatv)
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