What is Blue Chip Stocks: In the last one or two years, due to the advent of new discount brokers and low brokerage charges, the number of people investing in the stock market is increasing and it is a favorite for people who love risk. Has become a source of earning income.
But there are many different types of shares in the stock market, in which investing is very risky. While some stocks have less risk due to low volatility, they also get less profit.
Now in such a situation, the best option left for Retail Investors is Blue Chip Stocks. In this post, we will tell you what are blue chip stocks and in which way this stock has become very important according to the need of the market at present, as well as how you can also invest in these stocks.
What are Blue Chip Stocks?
Blue Chip Stocks are the shares issued by a company which is large in size, well-established and financially strong.
Their market capitalization is also very big and in general this company is the main leader of its sector. For example – Reliance Industries Limited, HDFC Bank, Asian Paints and Tata Steel.
Blue chip companies are very popular in the market, on which investors have a lot of trust, as well as they are also known for giving Consistency Dividend and Stable Return.
Why are these stocks called blue chip stocks?
There is an interesting story behind this, after the end of the First World War, there was a lot of change in the thinking of the people and games like poker became very popular.
The blue chips used in the game of poker used to be the most valuable, that’s why keeping these chips in mind, a journalist working in a US news paper first asked this for the stock of some big companies of America. The word was used and since then till today this word has become very popular.
Why are Blue Chip Stocks Important?
As we told you earlier, Blue Chip Stocks are the stocks of some reputed and best companies in their field. Several things make these types of stocks important –
- In this type of stock, you get a stable return, because the volatility of its shares is low due to the high market cap of the company.
- Due to the large number of shareholders of blue chip stocks in the market, there is more liquidity in their shares, due to which buyers and sellers are easily available.
- Stable Return on Equity (ROE), High Price to Earning (PE) etc. are also good as compared to ordinary companies.
- It is also a sector leader, so whenever there is growth in the sector, the maximum growth is seen in these companies.
Some Disadvantages of Investing in Blue Chip Stocks!
Investing in blue chip stocks can also lead to losses, as no stock is consistently blue chip.
For example – after the advent of Jio, the stock of Airtel company was removed from blue chip, because its investors were facing losses due to less number of users, although currently it has been put back in blue chip.
How to Calculate Blue Chip Stocks?
Many investors want to invest in blue chip stocks, but they do not find any easy way to find these types of stocks. Here are the things you can keep in mind to calculate blue chip stocks:
- The market cap of the company should be more than 1 lakh crores. Because the big market cap is helpful in fighting the downturn in the trade, so that the dividend you get will not be affected much.
- The Price to Earning Ratio (PE) of the Blue Chip stock you bought should be more than 15.
- The company should be the leader of its sector or one of the top 3 companies.
- Along with this, there should be continuous increase in the revenue, sales and net profit of the company.
[Note: You can take help of Screener to find Blue Chip Stocks.]
On the basis of all these parameters, you can compare companies with different blue chip stocks and choose any one or two companies based on your budget and investment.
Top 10 Blue Chip Stocks in India
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Is Investing In Blue Chip Stocks Beneficial?
Yes! If you have a good amount to invest in the stock market, then instead of adopting Day-Trading, invest in Blue Chip stocks, although you will get less profit in this, but the chances of earning profits are 99% and very few times. You will have to bear the loss.
How to Invest in Blue Chip Stocks?
To invest in Blue Chip Stocks, you have to follow a simple procedure –
1. First of all you have to open a demat account of yours. We would advise you to open your trading account on Zerodha as the Brokrage Charges involved are very less.
2. Based on your research, determine any stock of the Blue Chip companies you have chosen.
3. After that you can invest a fixed amount every month through SIP in Kite App of Zerodha.
4. For which you have to go to Orders and click on > SIP and > Create New SIP.
5. You can create a maximum of 20 SIPs, schedule the investment as well as invest, withdraw and transfer in a systematic way.
6. After this, you can keep a constant eye on your purchased stock, and sell it after getting the prescribed profit.
(Note: – We never advise you to invest by asking for loans or borrowings from other people, because stock market is a business where the potential for both profit and loss is very high.)
Blue Chip Stocks Vs Penny Stocks
Now let’s understand what is the difference between Blue Chip Stocks and Penny Stocks –
Blue Chip Stocks – These are reliable and popular companies, whose market cap is very large and at the same time their financial data is also very good. You can see them as one of the high rated brands in a market which provide a stable return. Big investors prefer blue chip stocks for Intraday Trading and Long Term Investment.
Penny Stocks – Based on the market price, these are very small companies which have huge growth potential. But along with that, they have a lot of volatility, due to which they are high risky, in which all the money invested can also get sunk. Mainly retail investors show their interest in this.
In this way we know what are Blue Chip Stocks and due to which reasons Blue Chip Stocks are considered to be the first choice of big investors.
I hope this post has helped you in understanding Blue Chip Companies. Please tell in the comment box which company you are thinking of investing in or in which stock you have invested.