Blue Chip Stocks

Shares of very large and well-recognised companies with an excellent reputation is called blue chip stocks. These companies are usually large and has good financial background. They can endure any adverse market situation and make good profit in good market condition. These are stocks that generally claim superior returns in the long run. Blue chip companies  are generally the group winner of respective industries. Like TCS in computer software industry and Coal India in Coal & Lignite industry.
Blue chip stock was the homonym for high priced stocks as it is costly. But now quality  shares are referred as blue chip stock. Such shares can survive any market challenge. Investors like to invest in blue chip stock because they have dependable financials and often pay dividends.

Features

• Established companies– blue chip stocks are issued by well reputed companies which have an excellent performance.
  
• Assured return – Blue chip stocks generally generate returns in the form of dividends quarterly. The ‘big fishes’ can pay out dividends even in adverse market conditions. So return is assured in blue chip stock.
  
• Credit-Worthiness – blue chip companies have high Credit-Worthiness. They have sound financial background. They are capable of clearing any financial obligations.
  
• Low risk – companies issuing blue chip stock usually have good financial stability. So the risk factor is very rare.
• Long term return – blue chip shares generate good profit in a long term. It will help the investors to achieve long term financial gaols.
  
• Taxation – The investors have the benefit of tax exemption on the dividends paid on the blue chip stocks. The gains generated through blue-chip shares in India are treated as income under Section 80 C of the Income Tax Act. The long-term capital gains exceeding Rs. 1 Lakh are subjected to taxation at the rate of 10%.

Advantages

• Blue chip stock are easily accessible. We can buy and sell such stocks very easily.
• Blue chip stock investors get their returns as dividend quarterly regardless of the market condition.
• Consistency of the returns is assured in blue chip stock. This stocks will help the investors to diversify its portfolio.
• Tax exemption is another befit of such stocks. The long-term capital gains exceeding Rs. 1 Lakh are subjected to taxation at the rate of 10%.

Disadvantages

Blue chip stocks are not really suitable for short term investments. Most of the blue chip companies are at their stable and mature face of growth. Hence their future growth is not as fast. More over the price of blue chip stocks are really high as they are owned by big companies. Also no company will continue to b in its prime position for ever. There is chances that a blue chip company lose its leadership in the market like Reliance Communication, Nokia etc.