Big, dependable, and stable businesses with a pronounced market presence are referred to as blue chip companies. Due to their stability and increasing dividends, blue chip stocks are a popular choice among traders and investors.
Blue chip stocks are frequently regarded as a good investment due to their consistent returns.
What are Blue Chip Stocks?
High-priced market stocks known as blue-chip stocks have recently become a popular choice for investors. Blue-chip companies are highly regarded in the stock market and typically have a solid track record of financial stability and credibility.
In addition to their reputation, these businesses’ attractive dividend payout policies can be blamed for the stock’s rising popularity. However, people need to arm themselves with a few key facts before making an investment in blue-chip stocks.
Blue-chip stocks are those that are issued by large market Capitalization companies, or “Blue-chip” companies. The shares issued by the well-established and well-regarded companies that issue these shares are highly valued in the market.
KEY TAKEAWAYS
- Large, reputable businesses known as “blue chip” corporations frequently include well-known household names.
- Because they consistently generate positive financial returns, blue chip stocks can be a wise addition to a portfolio.
- Blue chip companies are popular among investors due to their stable, growing dividends.
- While this may be mostly true, there is no assurance that blue chip companies will be able to withstand market challenges of all kinds.
- It’s essential to diversify a portfolio beyond just blue chip stocks because of this.
Features of Blue-chip Stocks
The features of Blue-chip stocks are listed below –
- Assured Returns
Dividends from blue-chip stocks produce returns every quarter. The fact that for the majority of investors, well-established companies act as a safe place to invest. The assurance of receiving consistent but guaranteed returns goes hand in hand with this safety.
- Credit-worthiness
Blue-chip businesses have sufficient capital to easily pay their debts and fulfill their obligations. As a result, the shares that these companies issue are highly creditworthy.
- Risk Factor
Blue-chip stocks have less risk factors than other types of stocks because large corporations with stable financial performance issue them. By diversifying their portfolio, investors can further reduce the risk that is associated with blue-chip shares.
- Investment Horizon
Typically, the investment term exceeds seven years. Due to their lengthy investment horizon, blue-chip stocks are suitable for achieving long-term financial goals.
- Growth Prospect
Large corporations that have reached their maximum growth potential are known as blue-chip companies. This affects India’s Blue-chip shares, which experience long-term, slow-but-steady growth.
- Taxation
Under Section 80C of the Income Tax Act, gains made through blue-chip shares in India are treated as income. The rate of taxation for short-term capital gains is 15%. Long-term capital gains above Rs. 1 lakh, however, are subject to taxation at a 10% rate.
Reasons to Invest In Blue-Chip Stocks
Indian blue-chip stocks are regarded as a desirable investment choice for achieving long-term financial objectives. Here are some justifications for purchasing blue-chip stocks:
- Higher returns that are paid quarterly are offered.
- Helps with corpus building.
- Helps to diversify a portfolio.
- Reduces the impact of inflation, economic stagnation, and the recession.
Major Advantages of Investing In Blue-Chip Stocks
Blue-chip stocks’ strong financial position, excellent market valuation, and creditworthiness work to the advantage of their investors and provide a number of advantages to them.
Investors in blue-chip stocks would benefit from the following:
- Regular and Stable Dividends
Investors in blue-chip stocks receive consistent returns on their investments regardless of the state of the market. These returns are provided to them on a quarterly basis in the form of dividends. - Possibility of Reaching Financial Objectives
Having an investment horizon of more than 7 years, long-term investments. It gives investors plenty of time to accumulate a strong corpus over the years in order to meet their individual financial objectives. - The Benefit of Diversification in a Portfolio
High-profile businesses known as “blue-stock companies” have a variety of revenue streams. It enables them to spread out the risks associated with owning blue-stock shares among their investors and cushions their losses from operational setbacks. - Liquidity
Blue-chip companies benefit from strong market reputation and creditworthiness. It directly raises blue-chip stocks’ market value and makes them a desirable investment choice for investors. This directly makes it easier to buy and sell these stocks, which increases their liquidity.
Disadvantages of Investing In Blue-Chip Stocks
Blue-chip stock investors might encounter the following disadvantages –
- Slow Rate of Growth
In general, blue chip stocks grow slowly. This implies that in order to receive the anticipated returns quickly, an investor would need to wait patiently. - Minimal dividend yields
Blue chip stocks may pay low dividends because of their slow rate of growth. - Generally Expensive
Blue-chip stocks are frequently in high demand because they are dependable, low risk, and volatile. When compared to other stocks of a similar size, this makes them expensive on the market.
Alternative Investment Options
Blue-chip shares in India have a low risk factor because of their market reputation and credibility. They are suitable for risk-averse and conservative investors due to the low risk burden.
However, investors can choose from these alternative investment options if they want to increase returns with less exposure to market risks:
- Actual Estate
One of the most lucrative investment opportunities in India remains the real estate market, despite a slight slowdown in growth. Residential and commercial properties are available for purchase, rental, or sale by investors, who can also earn income over time. - Traded-Deposit Funds
ETFs, a grouping of securities traded on exchanges, are thought of as a low-risk investment choice. ETFs have a low expense ratio and lower associated costs, and they frequently include stocks, bonds, commodities, and other investment instruments. Investors can invest in Gold ETFs, Liquid ETFs, International ETDs, or Bank ETFs depending on their needs. - Permanent Deposits
Blue-cap stocks are not the only option available to investors who want to earn returns; fixed deposit schemes also offer tax advantages.
Investors can park their money in fixed deposits for both long- and short-term periods, depending on their needs. FDs also give investors the option of borrowing money against them in an emergency. - Treasury bonds
Government bonds are safe investment options that the Indian government issues and the RBI regulates.
Investors in such bonds receive fixed interest and the chance to diversify their investment portfolio. Government bonds also provide investors with tax advantages and liquidity.
Blue-chip stocks in India are an attractive investment option for individuals who want to generate steady returns over a long period. However, investors can always explore other investment avenues and enhance the profitability of their investment portfolios.
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