What are Blue-chip shares?

BLUE CHIPS

‘Blue-chips’ is one word that you’d be hearing a lot of times once you start following the stock markets. So this post is about blue chips or ‘bellwethers’ as it is sometimes called.

Blue chip stocks are large companies whose shares are considered to be relatively safe than normal shares. It gains that status from its past record of being a high growth, high dividend paying company. These companies would be leaders in its field. For example-Infosys technologies is described by Medias as an ‘IT bellwether’. It reflects the investor’s confidence in that company’s capacity to maintain its status as the leader of the pack and its past record of excellent management and of giving good returns to it’s share holders.

The term ‘blue-chip’ is coined from a game called poker where the chip with the highest value is blue in color. In stock markets, the term is used to describe the stock that has highest quality – in terms of investor confidence.

There is no hard and fast rule to find out which a blue chip company is and which one is not. A blue-chip typically would have stable earnings and dividend history, a strong asset position, high credit rating and an excellent record of being a leader in its field. These are huge companies in terms of market capitalization and revenues.

All the 30 stocks in Sensex index can be considered as blue-chip companies. You can also see the Dow Jones list of Indian blue chips at –

http://www.bluechiplist.com/indices/dow-jones-india-titans-30/

ARE THESE SHARES SAFE FOREVER?

No. These shares may be assumed to be relatively safer than others, provided, the positive factors that drive the company remain intact. Just like any other company, a blue chip company can also run into financial troubles and become dead one day. No one can guarantee you that a blue-chip will remain like that in future also.

May be, some of the future blue chips are hidden in mid caps right now. If you have managed to spot them right now, you have a chance to become a millioner soon.

SHOULD YOU INVEST IN BLUE-CHIPS?

Of course, Yes! You must have some portion of your investments in Blue-chips. They bring the required solidity in your portfolio, since they do not fluctuate heavily like mid caps or small caps.

Investing in blue chip also requires lot money because; typically these shares will cost more. Hence, there is a necessity to valuate it meticulously.

You may like these posts:

  1. Benefits of owning shares
  2. Basic charcteristics of shares
  3. Lessons in computing returns – IV Returns from shares.

5 Responses to “What are Blue-chip shares?”

Gertrude

September 21, 2011 at 6:53 am

Great work

javaid

September 15, 2012 at 11:55 am

sir,
Then what is diffrnce betwen growth shares and blue chip shares.as both are type of equity.

J Victor

September 16, 2012 at 4:56 pm

Javaid, Blue chips are stocks of those large companies that leads a particular sector.Generally, It has four main characteristics -
(1) History-
(2) Large in size-
(3) Leader of a particular sector.
(4) Consistent dividends

Growth stocks , that is, companies exhibiting the potential for heavy growth , need not have a decade of history or a size that’s comparable to a large cap. They may not pay dividends and need not be the leader of the pack. The positive point of choosing to invest in a growth stock is that it might grow more aggressively than blue chips. naturally, Growth stocks are more risky.

Arun Vinesh

August 31, 2013 at 4:19 am

Nice article. can you explain me what is penny stocks ?

ashok mohane

August 16, 2015 at 8:27 pm

very useful information presented in lucid and simple way.thank you.

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