Bluechip funds are equity-oriented mutual funds that mainly invest in some of India’s biggest and well-known companies. The term “blue-chip” is commonly used for well-established business giants. In investing, blue-chip funds essentially mean large-cap funds.

These funds must invest at least 80% of their money in blue-chip or large-cap companies. The remaining money can be invested in other eligible assets, depending on the fund’s rules.

Blue-chip companies are the top 100 companies in India by total market value. Since these are industry leaders, investing in their stocks can add stability to your portfolio. However, blue-chip does not mean risk-free. They are still equity investments, and their value can still be volatile.

Bluechip funds can be a suitable choice for you if:

• If you are new to investing: If you are just starting out, bluechip funds can be a simple way to invest in big companies. You don't have to choose individual stocks. The fund gives you a stable mix of large companies in one investment.
• If you want to invest for the long term: Bluechip funds are better suited for long-term goals. They give your money more time to grow and help you handle short-term market falls. However, if you have a short-term goal, you can consider other schemes like liquid funds or short-duration funds.
• You prefer well-known companies: If you feel more comfortable investing in popular businesses, blue-chip funds may suit you. Most of the fund’s money goes into large-cap companies.

When you invest in blue-chip funds, you buy units at today’s net asset value (NAV). The NAV is essentially the price at which the fund trades. If you invest ₹10,000 when the NAV is ₹50, you buy 200 units (₹10,000/₹50).

The fund manager invests at least 80% of this money in blue-chip stocks, whereas the remaining goes into other eligible securities. Here’s one possible scenario:

Now, if the companies in the fund grow their sales and profits, their share prices may rise. This can increase your fund's NAV.

For example, if the NAV rises by 10%, your investment of ₹10,000 becomes ₹11,000. But if stocks fall and the NAV falls by 5%, your ₹10,000 investment may temporarily drop to ₹9,500.

Here are some advantages of investing in blue-chip mutual funds:

• Being part of solid businesses: Blue-chip companies are giants known for having long operating histories and strong positions in their industries. A blue-chip fund gives you exposure to multiple such businesses.
• Better information about companies: Blue chips are closely followed by big investors, analysts, regulators and rating agencies. This means plenty of transparent information is available about their business and financial performance.
• More stable growth: Although blue-chip companies may not double or triple in size like other small companies, they offer more steady growth in the long term.
• Comparatively lower risk: When markets correct, large-company stocks can also fall. But generally, they handle difficult phases better and recover faster when broader markets recover.

Bluechip funds may have lower risk than some other equity funds, but they are not as safe as a bank deposit. Here are some risks to know:

• Equity markets may correct at any time: When stock markets fall broadly, even blue-chip stocks can decline significantly. Triggers like a weak economy or a global market crash can affect your fund’s value.
• Returns may not always be high: Large companies may not grow as fast as smaller companies. So the blue-chip funds sometimes give lower returns than mid-cap or small-cap funds.
• The fund may fail to beat the index: An actively managed blue-chip fund may not always beat an index such as the Nifty 50. After fees, its return may even be close to or below the index.

How can you handle these risks?

• Invest for at least 5 years: This helps you deal with short-term market movements and gives your investment enough time to grow.
• Choose lower-cost funds: Always prefer direct funds over regular funds. Direct funds save you commission costs and offer lower maintenance fees.
• Diversify your investments: Don’t put all your money into one type of fund. You can combine blue-chip funds with other schemes such as mid-cap funds, flexi-cap funds, or debt funds, based on your goals and risk tolerance.

The main difference between the three is the size of the companies these funds invest in. Let’s compare:

All three are equity-oriented mutual funds, so they follow similar taxation rules. Profits earned on units held for 12 months or less are treated as short-term capital gains and taxed at 20%. For units held for more than 12 months, long-term capital gains above the annual ₹1.25 lakh exemption are taxed at 12.5%. Tax rules are amended from time to time. So always check the latest tax rates before investing.

The best bluechip mutual funds aren’t the ones that have given the highest return recently. Instead of focusing on returns alone, keep the following points in mind while selecting a fund:

• Compare with benchmark returns: Check how the fund has performed against its benchmark. Look at several years’ performance instead of only one year.
• Study the portfolio: Check which companies the fund owns. Also see how much money is invested in its biggest holdings. This tells you where your money is actually going.
• Check the expense ratio: This is the cost of running the fund. It is taken from the fund’s assets. Higher costs can reduce your returns over time. If two funds are similar, prefer the one with the lower expense ratio.
• Assess the risk level: Don’t assume that all blue-chip funds have low risk by default. These are equity funds. Always check the riskometer before investing.
• Don’t buy too many similar funds: Buying multiple blue-chip funds does not always give you diversification. Many of them may own the same companies.

Remember, there are many bluechip funds to invest in, but the right one matches your risk appetite and investment horizon.

Starting a SIP in a blue-chip fund on Millions is simple:

• Install the Millions app on your smartphone.
• Sign up with your mobile number and complete the KYC requirement to open a free account.
• Log in and select the blue-chip fund that meets your criteria.
• Click “SIP” and choose how often you want to invest: monthly, daily, or weekly.
• Enter the SIP amount, choose a debit date, and authenticate the payment.

That’s it. Your bluechip SIP is automated. You don’t need to start big. Instead, small and consistent equity investments go a long way.

Once you've built a core base with bluechips, you can add high-growth flexi-cap funds or risk-controlled options like balanced advantage funds. Just make sure you understand the fund and the risks involved before investing.