If you are looking for consistent returns with minimum risk, blue chip stocks may be the way to go. And if you don’t know what that is, this is just the explainer you need.
What makes a stock a blue chip?
So, first things first, what is a blue chip stock? It is the stock of a large, established, and financially sound company. These businesses are renowned for their reliable and consistent financial performance. They are also known to have a good capacity when it comes to withstanding economic downturns. With these stocks, the dividends often go to shareholders.
Such stocks are the most valuable and highly reliable investments on the stock market. So the phrase “blue chip” may have come from poker, where the blue chips are the most expensive ones.
Why invest in blue chip stocks
The stability of blue chip stocks is one of the main reasons to invest in them. Blue chip firms are among the safest investments in the stock market because of their track record. Many pro traders view them as profitable, less risky investments than smaller companies.
Another characteristic of such stocks is that they frequently give shareholders dividends. So shareholders can still profit through them even when the stock price is low. This gives you a consistent income source, which may be advantageous if you’re about to retire
These stocks also have a track record of paying out earnings. This indicates that they have a history of making profits. It is more likely than not that such businesses will keep doing well.
List of blue chip stocks
While there are many blue chip stocks, here are some of the more well-known ones:
- Procter & Gamble
- General Electric
- Tata Consultancy Services
- Reliance Industries
- Asian Paints
- Nestle India Ltd.
This list is subject to change with time. Businesses experience ups and downs due to various factors, so before making any investment decisions, do your own research.
An alternative: Blue chip funds
Blue chip funds are a great alternative to investing directly in blue chip shares. These funds are essentially Exchange-Traded Fund (ETFs) or mutual funds that help you invest in multiple blue chip shares.
By making an investment in a blue chip fund, you are spreading your money across several shares in blue chip companies. Diversifying your investment, basically. In the event that one of the fund’s companies performs poorly, diversification lessens the chance of you losing the entire investment.
Blue chip funds also provide liquidity. That means, they can be bought and sold on a stock exchange like individual shares. This lets retail investors who don’t have the money to invest directly in blue chip firms can also access them.
In conclusion, investing in blue-chip stocks can offer security, a steady stream of dividend income, and the potential for long-term growth. A great addition to any portfolio, these stocks are among the safer equity investments available.
1. What is the function of blue chip stocks?
The purpose of these stocks is to give investors a consistent and dependable source of returns. They are made to be held for longer periods of time, allowing investors to gain from the compounding effect and long-term returns. Such stocks can be used to diversify a portfolio too.
2. Why do investors select blue chip stocks?
Among the explanations why investors choose blue chip stocks are:
- Low risk: These stocks are among the safest investments on the stock market because there is little chance of abrupt price changes.
- Dividends: Many such companies distribute dividends to shareholders, giving investors a consistent flow of income.
Investment over the long term: Blue chip stocks are designed to be held longer. Investors, therefore, benefit from the compounding effect and long-term returns.
3. What are the advantages of blue-chip stocks?
These stocks are among the most dependable and financially independent investments. They come with several benefits, including:
- Reliability and steady expansion.
- Fewer risks.
- Very liquid.
- Steady dividend payments