What are Blue-Chip Stocks?

Blue Chip Stocks: Blue-chip stock is a large, well- established, and financially good company’s stock, which has earned profits for many years. The market capitalization of blue-chip stock generally occurs in billions. Usually, it is a market leader or one of the top three companies in the industry. And often their names are known at home. All the known FMCG shares are in this category. Most of the blue-chip stocks are large caps.

Why they are named as Blue Chip: While paying a dividend to be a blue-chip share is not entirely necessary, even though the blue-chip share is considered, companies are often required to pay a long record of stabilizing or increasing dividends. It is said that this word is taken from Poker where the blue chip is the most expensive pots. Blue-chip stocks are typically a component of the prestigious market index such as Sensex and Nifty.

Safe Investment: While the blue-chip company remains up to a certain extent with many challenges and market fluctuations and hence is considered as a safe investment, but it cannot be always possible. During the period of apathy in the market, the best companies may also have to struggle.

Investor’s Choice: Blue chips have a strong balance sheet and cash flows, strong business models and continuous growth. Many investors consider blue-chip stocks as a safe investment. Long-term investors keep their investments in blue-chip stocks faster and overtime to receive dividend payments.

Stability: Most investors know that there can be steady earnings in blue-chip stocks. During the economic downturn, investors can invest in these because of their safe nature. Blue-chip companies provide security during their slow management due to their intelligent management teams and the ability to generate stable returns. If the stock market faces a recession, investors do not have to worry about their investments in blue chips because they usually get recovered soon.

A blue-chip stock is suitable for use as a core holding in a portfolio, but generally, they should not be complete portfolios. A diversified portfolio usually needs to be shared with all types of shares. An investor should also have mid-caps and small-caps in portfolio shares. Young investors should also keep the stocks that can bear the risk in their portfolio with blue chips.