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Being a beginner, should I go for blue-chip companies or mid-cap to invest in a mutual fund?
Before leading up to the stairs of the share market, investors, especially beginners experience the dilemma between what to choose and what not. Investors come across a number of situation where they have to choose one over the other. For instance, Blue Chip or Mid Cap. Let’s find out what exactly they are?
Blue Chip Companies
In a layman’s terms, a Blue Chip company holds a huge market share, a huge number of customers, grand brand value, offer good liquidity in stocks, render great turnover in business, tracked by all Stock Research houses etc. These are some bright sides of a Blue Chip company; however, does this make them attractive enough to get investors. Well, in my opinion, that’s not enough.
In reality, a good company does not mean a good venue to invest in. Experts believe that there is a difference between a good company and a company good for investment. Generally, it’s miscalculated by most of the retail investors because if the so-called “Good Company” is trading at a fair valuation, it ends up being an ordinary investment.
On the other hand, if a company is doing business at above the fair valuation, it even becomes a worst case. In short, a good company to invest means a decent company available at an undervalued price.
Why Not Choose Blue Chip
The most important fact is that there are very fewer chances when Blue Chip companies are undervalued. Their stocks are tracked by many stock research houses, Mutual Funds, Stock analysts, FIIs, HNI, etc.
Therefore, all the future potential of these companies are factored in the current price. Even a Blue Chip company is going to get 100 percent growth every year in the next 3 years, it does not prove to be a Great Investment and the investors will hardly make any huge money out of it.
If you come across any company, which is undervalued and their trading volumes to are not very high, and even they are listed on BSE only. However, registering a whopping growth in the recent dates. Such companies, although are labelled as Mid Cap they are the hidden gems from the investment point of view.
Talking about their major characteristics, they have very strong fundamentals and surprisingly, their fundamentals do not match with their current price.
Why Investing in Mid Caps Can Prove to Be Highly Beneficial?
There are instances where mid or small caps outperformed Blue Chips. In some cases, their stocks sky-rocketed within 2-3 years from a small number to greater. Approx, ten times in two years only. In the past, Sensex has gone up by 20 per cent and these companies displayed 1000 percent which is way higher than any of the Blue Chip giant.
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