What are Blue chip companies
Blue Chip companies can be defined as follows
They are stocks of well-established and financially sound companies which have demonstrated their
ability to pay dividends in both good and bad times.
Stocks of leading and nationally known companies that offer a record of continuous dividend payments
and other strong investment qualities.
Both these definitions cannot guarentee safety with high visibility in terms of dividend distributions or
strong fundamental growth .
As in the case of several other popular perceptions, this strategy, too, may promise more than it can
deliver. Here are two reasons:
Most of the NIfty stocks are Bluechip stocks
Advantages of Investment
a) Such companies are well tracked by analysts, investment house, so easy to track and keep
b) Besides these points, the core assumption that 'blue chips' have less price risk embedded in
them could be questioned. Sure, the intrinsic risk is lower, as many of these have high market
shares and strong balance sheets.
c) These stocks are usually more liquid as compared to the rest of the market. Hence, they are
liked by institutional investors such as mutual funds and insurance companies, not to mention the
Foreign Institutional Investors.
Precuations to be maintained
a) Many times blindly buying a Blue Chip company's stocks irrespective of the valuations may put
you in losses.
b) Purchasing blue chip stocks at any price and at less than sensible valuations may actually
increase the risk of permanent loss of capital.so valutions need to be checked before investing
hard earned money.
c) Buy and Forget approach should not be applied even for blue chips companies and periodic
review of its earnings and stock price movement has to be reviewed.