Blue chips are stocks of big companies which are considered to be comparatively safer than most shares. The shares gained this status because their past record of the company has had high growth and paid a good dividend.

The companies are usually leaders in their field of activity, like for example, Infosys technologies which the media describes as a ‘bellwether’. It shows the confidence of the investor in the capacity of the company to hold on to its status as a leader in the sector and its past record of having given good returns to its shareholders.

The term ‘blue-chip’ is derived from the card game poker, where the color of the chip having the highest value is blue. The term is used to describe a high-quality stock concerning investor confidence.

There is no set rule to designate any company as a blue-chip. The company would have had over the years consistent earnings and dividend-paying history, along with a robust asset position and a high credit rating with excellent leadership in its field.

The blue ship companies are huge in terms of their market capitalization and revenues. The 30 stocks that comprise the Sensex index are considered to be blue-chip companies.

Does it mean that blue-chip shares will always remain safe?

The answer is No. The shares may be considered to be relatively safe than other shares as long as all the factors that have been driving the company remain the same.

There is always a possibility that a blue-chip company could run into financial problems and become extinct. There can absolutely be no guarantee that a company will retain its blue-chip status in the future.

Some of the mid-cap companies we see today may have the potential to turn into blue chips in the future and those investors who able to spot them now are sure to reap rich returns.

Is it wise to invest in blue-chip stocks?

Without a doubt, the answer is Yes. Having a portion of your investments in Blue-chips gives your portfolio a solid base as prices are not as volatile as in mid-cap or small-cap stocks. It is however necessary to do some research on the shares before investing. One must remember that investing in blue-chip shares need a larger outlay of funds.