What Is Blue Chip Stocks?

Blue chip stocks is the term used to describe the safest and most reliable equity stocks in the world of equity investing. Investing in equity markets is ubiquitous with risk in investment. Blue chip stocks are the safest equity stocks one can purchase.

Blue chip stocks as a term was first used by a stock market trader – Oliver Gingold in 1923, when he wrote an article to describe the stocks being traded at over $200. They have become a term of general use and is now used to describe not just the expensive stocks, but as a term for high-quality stocks.

Another story about the origin of blue chip stocks is the game of poker – the most expensive chips are the blue coloured ones. Maybe this is the reference that inspired Oliver Gingold – we can't be certain, but what we can be certain is that blue chip stocks are the crown bearers of any well rounded and diversified portfolio.

There are certain characteristics that all blue chip stocks have in common. Sometimes knowing these characteristics can help you identify a blue chip stock from a promising one that may not necessarily fall as a blue chip stock.

Some of these characteristics are:

• Blue chip stocks are of those companies that have withstood the test of time – and are large reputed companies with widely used products or services.

• Blue chip stocks have been listed on stock exchanges for a long time and have passed the trials and withstood the pressures of ups and downs in business, market and economy.

• They have healthy financial ratios – such as debt to equity ratio, market capitalisation ratios, high return on equity ratio, interest coverage ratio, price to earnings ratio etc.

• Blue chip stocks are easily tradable and they are active stock market scrip.

• Blue chip stocks have a good track record and the companies have good past performance as well.

Some Blue Chip Stocks in India are ITC, Reliance, Infosys, HUL (Hindustan Unilever Limited), Eicher, Asian Paints, Bajaj Auto, TCS, Nestle, HDFC Bank, ONGC (Oil and Natural Gas Corporation), GAIL(Gas Authority of India Limited), and many others.

There are several reasons why investors should consider blue chip stocks and reap the benefits of buying them.

Blue chip stocks have always survived in the long run. If one holds a diversified portfolio of blue chip funds, there is every reason to believe these are stocks worth holding on to from generation to generation.

Blue chip funds most often pay regular dividends and can be a reliable source of passive income. It is not guaranteed that the past performance is a good enough indicator of what kind of dividends an investor can realistically expect.

Remember – Investing in blue chip stocks is for the long term only.