What are Blue chip funds
A Blue Chip Fund invests in Blue Chip companies. Such companies are stable, reliable, and financially strong. They look for steady returns with low risk. Such companies are usually established market leaders.
The Blue Chip Funds focus on market leaders in their respective areas of business. They are mostly long-term performers, but they also pay out most of their earnings in terms of dividends.
The characteristics make the Blue Chip Funds appealing to conservative investors who want less volatile investments.
They prioritize long-term growth and stability, and for that reason conservative investors who are looking for safe returns find them to be a better option.
Thus, investors look at these funds for providing stable and predictable financial growth over time.
What are Large Cap Funds?
Large Cap Fund Invests in the shares of those companies which have a huge market capitalization, known as giants in their industry.
They are well-established and financially strong companies offering stable investment opportunities.
Large Cap Funds target businesses that rank top in terms of market capitalization, which reflects their size and stability in the market.
Such investments tend to be less volatile compared to those smaller companies and can provide very consistent returns.
They have a place in the minds of investors who are interested in finding reliable growth prospects with a relatively lower risk profile, thus forming a foundation of many investment portfolios.
Such funds are appealing to the people who want to invest in the backbone of the economy that consists of proven resilient firms.
Key difference between Large cap and Blue chip companies is as follows:
1. Risk Level
Blue Chip Funds
A proven track record of such companies in delivering consistent returns adds to the stability of the fund.
Therefore, conservative investors in the market often choose blue chip funds since such funds face less volatility and a more predictable performance over time.
Large Cap Funds
Large Cap Funds also expose lower risk than smaller or mid-cap funds, although the funds are exposed to market volatility especially during a weak economy.
Since such funds focus on companies having large market capitalization, such companies may not always lead an industry.
Therefore, large-cap funds are moderately exposed to market risks, yet are more stable than mid-cap or small-cap funds.
2. Return Potential
Blue Chip Funds
Blue chip funds offer generally a medium return potential in the long-term. Sudden dramatic returns cannot be expected from blue chip funds, but steady performance will provide consistent growth for long periods of time.
Blue chip funds can prove to be relatively safer for investors targeting capital preservation with moderate growth.
Large Cap Funds
Large Cap Funds have moderate return potential and usually offer higher returns during bull market phases.
Since the funds are tied to large, high-cap companies, their performance might rise more sharply during market booms than that of blue chip funds, which tend to be more conservative.
However, this also means that large cap funds tend to fall more during bear markets.
3. Volatility
Blue Chip Funds
Blue chip funds are safest because they invest in companies which are very stable and which have survived different market cycles, blue chip funds experience less volatility.
The set-up of blue chip companies makes it less likely to suffer from dramatic price swings that are experienced in other sectors of the market.
Large Cap Funds
Large cap funds are not as volatile as that of mid or small-cap funds, large-cap funds have a bit higher volatility than blue-chip funds.
Large-cap companies may indeed be more sensitive to the market fluctuations than those companies with blue-chip tags but are more stable compared to mid or small-cap funds.
4. Investment Horizon
Blue Chip Funds
Blue Chip Funds are the best suited for the long-term investor who plans to hold onto his investments for five years or more.
These funds tend to grow steadily, and their strength lies in providing consistent returns over long periods.
Large Cap Funds
Large Cap Funds are generally for medium or long-term investors. One needs to hold investments in these funds for three to five years.
Large Cap Funds can offer slightly higher returns in relatively less time compared to blue chip funds, provided market conditions are right.
However, the risk factor here is marginally higher than a blue chip fund.
5. Ideal for Investors:
Blue Chip Funds
Blue Chip Funds are best suited for conservative investors who would like to avoid aggressive growth but instead focus on stability.
Such investors are usually not ready to take risk and are more concerned with the preservation of their capital while still earning a moderate return.
Large Cap Funds
Large cap funds serve those investors who are interested in getting a balanced exposure in the stock market. Such investment will provide stability as well as growth potential.
This is a bit riskier for the investor than a pure investment in blue chip funds. However, the investment still stays relatively safer compared to mid or small-cap funds.
