Table of Contents
- What are penny stocks?
- 2.Benefits of investing in penny stocks
- Low share prices
- High profit
3.Investing in penny stocks
- Risk heavy
- Risk liquidity
4.Things to remember when choosing the best penny stocks
- Research about
- Invest in limited stocks
- Invest for the short term
- Do not follow the herd.
Penny Stocks: Investment Strategy or Craze?
Penny stocks are risky, but lower priced stocks have lower liquidity and far lower market capitalisation. But, if chosen properly, they can motivate you to make a good investment.
What are penny stocks?
As the name suggests, penny stock trades for a penny, ie a very small amount. They are also known as percentage stocks. These shares in India may have market prices below INR 10.
Benefits of investing in penny stocks
Low share prices
The best feature of penny stocks is their low prices. You don’t have to put away a lot of cash. It becomes beneficial for investors on a budget.
Penny Stocks provide the potential for high profits. The companies providing them are still in the development stage. This means that the value of the shares can rise higher than the high-value shares of large and well-established corporations. Also, even if there is a slight increase in share prices, the profits will be huge. For example, if the investor is 10,000 shares of INR 5 each, he has a total amount invested of INR 50,000. Now if the price goes up to INR 8 in a day, the investor makes a profit of Rs 3 per share. It values their total investment of INR 80,000 (30,000 more in a day!). But, the thing to remember here is that due to the volatile nature of these stocks, you will lose the most rather than profit.
Stocks with good fundamentals quoting below Rs. 10
Stock Stock Price
- IOB INDIAN OVERSEAS BK 40
- IDEA VODAFONE IDEA LTD 25
- MAHABANK BK OF MAHARASHTRA 00
- TRIDENT LTD. 78
- ALOKINDS ALOK INDUSTRIES 30
- FCONSUMER FUTURE CONSUMER 52
- SUZLON SUZLON ENERGY LTD 37
- SOUTHBANK SOUTH INDIAN BANK 51
- RENUKA SHREE RENUKA SUGAR 95
- DISHTV DISH TV INDIA LTD 80
Also Read – Top Demat Accounts in India
Risks of Investing in Penny Stocks
Penny stocks can lose money the sooner they make it. The low price of shares can be an indicator that the company is not doing well, putting them at a high risk. Returns can be high, yet so are the dangers. Therefore, penny stocks should be considered only by experienced investors who are ready to take huge risks.
Although penny stocks are slightly lower than regular stocks, their liquidity is a concern. Since these stocks carry high risks and have low regulations, buyers are reluctant to buy them. This affects the liquidity of shares, making them unattractive to investors.
Things to remember when choosing the best penny stocks.
Penny Stock companies is usually small. Despite being listed on the stock exchange, they are not quite as popular or well known. Before investing in these stocks, look at the company and its products and understand what you are investing in. You do not want to end up with shares of a company near bankruptcy or had weak fundamentals. Look at the fine print before putting your hard-earned money.
Invest in limited stocks
Although the low price of these shares may seem like an attractive option, do not be tempted to buy more. Penny stocks have large fluctuations. It is wise to invest in only 2-3 stocks as it helps keep track of them.
Invest in the short term
Investing in penny stocks should only be a short term investment strategy. There is no forecast in these stocks. So you can make money today and lose it the next day. A wise choice is that when you gain money, the money makes the stock suitable only for the short-term. However, one should note that there is no easy money.
Do not follow the herd
Traders like to follow the pump and dump strategy. What happens in this strategy is that rumours about the stock spread and traders buy stocks in bulk to show high demand. Since there is not a lot of information available to the public about money stocks, they see the increasing demand and invest their money. Once the stock reaches a good value, traders close it. This affects the share price, which then falls sharply and investors lose all their money. The key is to keep a low profile rather than invest in haste. Investment in percentage shares is more than a fad rather than just an investment strategy. They should only be considered by highly experienced investors, who have the pennant to take risks, who can monitor the markets and have the ability to take a loss. Always remember, penny stocks are like “high-risk” stocks that can’t match. Risk profiles. For most investors, they work on information asymmetry and move in ways that most experienced investors predict. Are not enabled. For retail investors, mutual funds are a safer and better option that may not offer exaggerated returns (although they do in the long run!) But give a steady return over time and are managed by experts.
Disclaimer: Verify the plan information from the document before making any investment. For Expert advice please contact Mr. Viibhor Agrawal CEO Fox Investor
Founder & CEO| Fox Investor & A.V.A. Taxway Associates- Corporate & Tax Law Firm
Viibhor Agarwal is a Business & Brand Consultant as well as he is a Financial Expert his area of specialization is to guide Entrepreneur, Start-up’s and SME’s to build the brand value of business financially & legally. He has 8 year extensive experience in this sector