What are Blue Chip Stocks? Are They Good Investments?
October 24, 2017
Blue chip stocks are the stocks of well-established companies that have a track record of high returns. An example of this is the largest tire manufacturer in India i.e. MRF (Madras Rubber Factory). In 2016, its stocks were sold at the highest rate of Rs. 35,000. However, in just one year, i.e. today, these are selling for close to Rs. 64,000.
Other well-known blue chip stocks include State Bank of India, Bharti Airtel, Coal India, Reliance Industries, etc.
Are Blue Chip Stocks Good Investments?
As it’s clear that blue chip stocks are of the elite companies that have a good reputation in the industry, it begs the question- won’t it be a good idea to stick to them only? The answer is “not really”.
While blue chip stocks are indeed good investments, they have disadvantages as well. So, you must weigh the pros against the cons to decide whether they are a good option for you or not.
The following are the top advantages of blue chip stocks:
- Dividend payments on these stocks are usually quite consistent
- The companies have well-tested and powerful business models
- The companies usually don’t have any debt on them and are highly rich in capital
- These stocks are a good option for long-term and steady returns
- The stocks are less volatile than other stocks
The following are some of the drawbacks of investing in blue chip stocks:
- When stock markets crash, these stocks are often bear the brunt of the impact
- Most of these stocks are traded at a high price, thus making them inaccessible and unsuitable for a large number of investors
- Blue chip companies are usually quite conservative in exploring new business opportunities and have small risk appetite
All in all, if you like, you can invest in blue chip stocks, especially if you want long-term gains and are new to stock investments. However, it’s better to maintain a certain level of diversity in your portfolio.