You must have heard about Blue-Chip stocks during your investment journey. These are amongst a preferred option for many stock market investors over the last few years despite their high price.
Blue Chip stocks are the stocks of some of the highly esteemed companies listed on the stock exchanges. These companies are very stable and have very sound financial and credibility. Since the companies are sound and in profits, there are high chances of dividend pay-outs with Blue Chip stocks which can be one of the major reasons for the popularity of Blue-Chip Stocks.
It is often misinterpreted that a stock which has a very high value will be a Blue-Chip stock, but that’s not always true. Blue-Chip stocks are basically the stocks of high-quality companies. These companies are nationally recognized, financially sound and well-established.
History of Blue-Chip stocks
The term blue chip originated in US markets and is based on the game of poker. Poker is played using blue chips, white chips and red chips, where the blue ones have the highest value of the lot. Referring to the same, Oliver Gingold, who was an employee at the Dow Jones, observed some stocks trading at over $200 per share in 1923, and were termed as Blue-Chip Stocks.
Table of Content
Blue-Chip stocks and Features
- What are Blue-Chip Stocks?
- Feature of Blue-Chip Stocks
- Assured Returns
- Credit Worthiness
- Risk Factor
- Investment Horizon
- Growth Prospect
- Taxation
- Why should you invest in Blue Chip Stocks
1. What are Blue-Chip Stocks?
To understand Blue-Chip stocks, we should first understand what Blue-Chip companies are. The companies which have a large market capitalization are termed as Blue-Chip companies. These companies are very well established in the market and are usually supported by a strong public reputation.
There are numerous benefits of investing in Blue-Chip stocks. Let us take a look at some of the features of Blue-Chip stocks which will help it easier for you to understand why you should invest in Blue-Chip Stocks.
2. Features of Blue-Chip Stocks
Some of the major features of Blue-Chip Stocks include:
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Assured Returns Since Blue-Chip companies are well established, there are high chances that these stocks will generate quarterly returns in the form of dividends. The reputation of the companies also makes it a safe haven from investor’s perspective. Therefore, there is an assurance that these stocks will generate steady returns.
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Credit Worthiness The shares of Blue-Chip companies usually have very high creditworthiness. The reason for this being that the companies associated with these stocks have enough capital to maintain their financial dues and obligations.
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Risk Factor As we always say, with investment your capital is at risk, but in case of Blue-Chip stocks, this risk is comparatively on a lower side because the companies have a stable track record and financial performance. To further lower the risk, investors can diversify their portfolio accordingly.
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Investment Horizon Blue-Chip stocks are suitable for long term horizons. The term of investments in these stocks usually ranges from 5-10 years or even longer. This long horizon makes these a perfect option for achieving all your long-term goals.
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Growth Prospect The growth prospect of these stocks is slow and steady. You must have heard the old proverb, “Slow and Steady wins the Race”. Since the companies have reached their maximum potential, they demonstrate a steady growth over years.
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Taxation The returns from investments are categorized in two categories, short-term capital gain and long-term capital gain. While the short-term gains are taxed at 15%, long-term gains are exempted up to a limit of 1 lakh, beyond which they are taxed at 10 per cent under the section 80 C of the Income Tax Act.
1. Why should you Invest in Blue-Chip Stocks?
Blue-chip stocks are one of the most preferred categories by investors. Some of the reasons, which make them a preferred choice include:
- They offer quarterly payouts in the form od demand which makes the overall return high.
- The high returns help in building enough corpus for your financial goals.
- hey are a very important asset class for portfolio diversification.
- They are usually resistant against the effects of economic stagnation and other similar factors.
Conclusion
Blue-Chip stocks may have several advantages, but it must be noted that the capital requirement for investing in them is high owning to the high costs, therefore they not be suitable for new or small investors. Thus, it is very important to pick the best investment option for you based on numerous factors. An investment advisor can help you in choosing the best investment option as per your needs.
