Blue Chip stocks: 7 reasons to have in your portfolio

What are Blue Chip Stocks or Companies?

BlueChip Stocks are market stocks that are highly-priced. It has now emerged as an investment option over the past years. The companies that issue such type of stock are highly esteemed, with stable financial records and credibility. These companies provide attractive dividend pay-outs that gain the popularity of these stocks. There are few details that every investor should know before investing in the blue-chip.

Blue-chip stocks are issued by companies that have a large market capitalization and they are known as Blue chip companies. Companies that issue these types of shares have a great reputation and are well-established.

Features of Blue-Chip Stocks

The features of Blue-Chip Stocks are listed below:

·         Credit-worthiness: There is enough capital with Blue-chip companies that is sufficient for clearing all obligations and financial dues easily. This factor makes the creditworthiness of such companies high and the risk of default is low.

·         Risk Factor: Big companies are financially stable so the risk factor is comparatively low. The small amount of risk can further be reduced by diversifying your investment portfolio of blue-chip shares.

·         Growth Prospect: Blue-chip companies are large companies that have attained a level where the growth potential is maximum. Blue Chip shares grow slowly and steadily over time.

·         Investment Horizon: For investing in these shares the term of investment is over 7 years. Such a long period of investment makes it a good option for achieving long-term financial goals.

·         Taxation: The gains that can be obtained via blue-chip shares come under Section 80 C of the Income Tax Act that does the treatment of it as Income. The tax rate for short-term capital gains is 15%. Additionally, the long-term capital gains that exceed the amount of Rs. 1 lakh have a tax rate of 10%.

·         Assured Returns: Blue-chip stock’s returns are generated quarterly as dividends. Additionally, the fact that these are well-established companies serves the investment as a safe one for the investor. The returns are steady and guaranteed so the clients are kind of relieved and less afraid of any frauds.

Reasons to Have Them in Your Portfolio

Here are 7 Reasons why you should have Blue-chip stocks in your portfolio. Those are:

·         Timely Payments of Dividend: There is a trend of these companies that they consistently provide timely dividends. Additionally, this is because the income of these companies increases with capital appreciation. Also due to this reason Blue chips are termed as the best form of investment.

·         The Aspect of Strong Financials: The company is backed by strong financials so the debt-equity ratio is ideal. In addition to that, the financial ratios are great with an efficient operating cycle. Moreover, the low volatility, minimal risk, and mitigation of risk portfolio make this attractive for the investor.

·         Goodwill and Brand: Blue-chip companies have a good reputation and goodwill among households. Moreover, there is a competitive advantage over new companies or any incompetent competitors. The cost efficiency, distribution control, etc make these companies become market leaders. Some of the well-known blue-chip companies are McDonald’s, Reliance Petroleum, Infosys, Nestle, P&G, etc are on the Fortune 500 companies’ list.

·         Stable Earnings: You earn a stable dividend income via blue chips if the business is doing great. The trust of investors is earned by the company as they provide stable earnings to investors, shareholders, stakeholders, and employees.

·         Diversification: Diversification is a great move to reduce the risk of your portfolio. These companies minimize the risk of losses as they are backed with excellent operational efficiency. Blue-chip business diversification of demographics, generating channels, business lines, etc can be a blessing.

·         Liquidity and Ease of Access: As these stocks are popular the liquidity is high and they are easy to sell/buy. Moreover, you will appreciate this benefit of liquidity when you have already known the pains of selling an unpopular stock. It is a frustrating job to offload a less popular investment as the value starts to fall or when you want to let go of some of your equity. Blue-chip stocks are the most liquid investment as you can trade them in moments with the help of online platforms, various brokers, or fund managers.

·         Availability of Investment Options: There are a variety of ways in which investors can access these stocks. You can buy it directly or through ETFs or Investment funds. Additionally, you can choose from many investment options, that also includes UK-based companies, American or Korean Exchange. The benefits of ETF are that they have minimal transaction fees and can help to diversify your portfolio easily to cut costs.

If you still don’t have demat account, here how you can open upstox account.

How to identify the best fit Blue-chip stocks for your investment portfolio?

Many mutual funds and investors that are experienced prefer Blue chip stocks due to their impressive track record and dominance. Some of the factors to consider while choosing the best Blue-chip stocks are as follows-

·         Size: The value is indicated by the size of the company or market capitalization. Market capitalization is calculated by multiplying the number of shares with the current market price.

·     Company Revenue: When you identify the big companies you need to check the revenue or income. The companies you would want to invest in should have a larger market share.

·         ROE: Return on Equity helps to identify higher profitability companies against shareholders' equity.

·         ROA: Return on Assets helps to identify assets effectively in order to generate profit.

·       Valuation of the Company:A company’s valuation is not the same as market capitalization. It is based on factors like demand, supply, etc. Pay close attention to intrinsic value instead of the market price.

For more ratios visit Ticker

Conclusion

Blue-chip stocks have many benefits as compared to equity stocks. You should always do proper analysis before investing. There are many reasons to invest in them as they are trusted business models, have increasing dividends, steady cash flows, etc. They are considered a safe haven due to their strong performance, seasoned investors, and excellent track records. You should also consider the features of these stocks to know them better. Choose wisely and invest smartly.

Resource: https://www.apsense.com/article/blue-chip-stocks-7-reasons-to-have-in-your-portfolio.html

Factors To Consider While Choosing A Stock Broker

 “Risk hai toh Ishq hai,” the line which got us grooving through the year of 2020 from the famous 1992 Financial Scam Series based on Harshad Mehta. Our financial knowledge though restricted, was confident enough to take the risk and invest in this particular thing called “.” 

Stocks are controlled by the stock markets and a wise decision needs to be taken to minimise loss and maximise profit here. Since we do not have the expertise to directly trade in the market, we hire brokers who perform as intermediaries to perform this job charging commission. Now we know the basic terms involved in our journey towards investing in stocks, let us dive deep to understand this financial market and our decisions.

What is a Stock?

A stock is basically security which represents the ownership of a fraction of the company. The units of stocks are called shares. These shares are issued by companies to raise money from the market while people prefer it as an investment.

For e.g., if you purchase stocks of Google, you purchase a fractional portion of ownership in Google (you do not own the company since every company lies as a separate legal entity and also you buy a fractional piece of the corporation only).

Stock Markets

The Stock Market is the place where the activities like buying, selling, and issuance of shares by public companies take place. There are multiple stock trading venues in a country or a region that allows such transactions and operations.

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It brings all the stocks together in a market ensuring fairpricing practices and transparency in transactions. In India, we have the Bombay Stock Exchange and the National Stock Exchange while some leading stock exchange markets include the New York Stock Exchange and the Chicago Boards Options Exchange ( CBOE).

Stock Brokers

A stockbroker is basically a professional trader who buys and sells the shares on behalf of the clients. They might also be known as an investment advisor as they recommend the best investment decisions for you.

They work individually as well as with a brokerage firm and charge their commission or the compensation as decided by the employer.

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There are various heads under which the stockbrokers work such as:

1. Full service or Traditional brokers.

2. Discount brokers.

Most of the people are now using the online discount brokerage system like Zerodha, Upstox, Samco, etc. where they do not offer individualized investing advice but a platform to execute trades for a small-set of commission to be paid on every order. The traditional brokers, on the other hand, provides you with all the services of investment, planning, wealth management, and other sorts of advice charging a total cut commission on the volume of the trade. These include ICICI Direct, Kotak Securities, Sharekhan, Axis Direct, etc.

Why a Stock Broker?

The most common question which one might ask is if I have the financial knowledge, then is there a need to pay a certain commission to a broker. So the people who trade are the members of the exchange or belong to a member firm. They are licensed as brokers or broker-dealers by the Financial Regulatory Authority (FINRA). Though it is possible for you to buy and sell stocks directly but it is always preferred and simpler to do it through a stockbroker.

There are various benefits to hiring a full-service stockbroker like:

1. Investment management Expert Advice.

2. Marketing Insights.

3. Provide research.

4. Make informed choices.

While for Discount Brokers:

1. Easy accessibility.

2. Quick mode to transact.

We know the definitions and the marker now but what to see in selecting the right stock broker for you what are the pain points or the brownie points to give to anyone while selecting the one.

Factors to Consider While Choosing a Stock Broker

You want your return on investment to be the best and thus, you need to consider hiring a proper stockbroker. Here are the following points you must keep in mind:

Check for the Broker’s background: It is essential to do a history check of the performance of the brokers like the number of years he has been in the industry, the reviews of the clients worked with, performance output, and others. For e.g., if one buys an apple from a shopkeeper he ensures that his investment is worthy enough to have the proper product.

Look for the minimum balance to be kept: The stockbrokers required you to maintain a minimum balance with them. Compare the various brokers in the market and choose the ones which suit your pockets.

Check if the broker is regulated: Frauds are bound to happen in this market where people are oblivious to the profits and losses, so they might fool you in the name of higher margins but it is your responsibility to check the authenticity of the broker so that your crucial money is in the right hands.

Checking the research capabilities: The past performance on the equity reports, publishing market trends, and their insights on the financial markets are the ones to look out for in terms of choosing the best out of the brokers. Various websites as well as the stockbroking agencies have their own blogs and recommendations where they help you in your investing journey.

Margin Leverage: Margin exposure is a huge factor in selecting the best brokerage firm for stock trading as it allows you to trade multiple times over available funds in your account. Some brokers like Kotak Securities offer 50 times leverage for intraday trading so one must check out this facility to be availed.

The commission charged: Different brokers have their different sets of commission, it is advisable to check the margin of profit of the brokers so as to ensure a fair deal for yourself.

Customer Service: The vital role of a stockbroker is to provide good services to the end-users. One must always ensure if they are capable enough to provide good customer services as to responsive, alert, and all-time ready to deal with your matters. One can check with the other clients for their experience.

Add-on financial services: Add-on services are always considered to be an additional benefit on the part of the broker. It is recommended to inquire about the add-on services provided by a broker. You must compare the add-on services provided by different brokers and check how it will help you in achieving your financial goals.

Trading Platform: The online trading software offered by the broker nowadays is in the limelight. Your trading experience solely depends on the features, speed, user-friendliness, and reliability of the software.

Ask the question if the software has advanced charting features or market scanners? Does the broker offer a good mobile trading app to help you analyze and trade on-the-move? Read the reviews of the trading app of the stockbroker before making a decision. Check for the brokerage fees advising features and various other options available at the same commission rates and compare all the platforms and then come to a conclusion.

It is fair to say now that an investor should keep in mind the above factors to ensure the return on his investment and give in the specified time to research for the best stock broker for himself/herself. But where can you go for the right financial advice? Well, that’s a question you must answer yourself.

Disclosure: I wrote this article for information purposes only, and it expresses my own opinions. Therefore, the readers/investors are hereby advised to apply their discretion while selecting the stockbroker and making investing related decisions.

Originally published at https://seekingalpha.com on December 31, 2020.