Penny stocks are shares that trade at minimal prices on stock exchanges. They belong to small companies with low market capitalisation and tend to be highly illiquid as they are traded infrequently.
In India, these stocks usually trade at prices ranging from Rs. 1 to Rs. 10 per share. They present a great money-making opportunity for investors who are able to identify a multi-bagger stock at its early stage. However, these stocks are high-risk investments with high levels of volatility, chances of fraud and wild price swings.
Penny stocks are low-priced shares of small companies. These stocks can show a high and sudden surge in price. They are infrequently traded and have a small number of shareholders. There is also limited information about these companies and no price history.
All of the above factors make penny stocks highly risky and speculative investments. These stocks are also prone to scams, price manipulation, sudden delisting and regulatory hurdles. A market manipulator can easily change the stock price by buying a few thousand shares.
The following are some of the reasons why you may consider investing in penny stocks:
You will need a penny stock broker to get started with investing in penny stocks. Here are the steps you can follow to get started:
Before you start trading in penny stocks, you will want to determine if the business is profitable and if it is the right time to buy/sell the stock.
Penny stocks attract investors with the possibility of lucrative returns. The biggest benefit of penny stocks is that investors can potentially turn a small investment into a fortune if they invest in the right stock. For example, if you own 40,000 shares costing Rs. 1, a price increase of Rs. 1 will give you profits of Rs. 40,000.
Penny stocks are a great option for new investors who have just entered the world of investing. Unlike other types of stocks, it is not always possible to predict their price movement using technical indicators. That is why beginner investors, who are unversed in the technicalities of major equity investments, can easily start trading in penny stocks.
Penny stocks also require smaller investments to get started. Investors do not require much capital to grow their wealth using these stocks. Their low prices also limit the losses that investors could potentially incur. Moreover, this allows significant room for potential upsides.
The following are a few disadvantages of investing in penny stocks:
Here are some of the factors that you will want to check before investing in penny stocks:
Penny stocks are high-risk investment options as they do not offer substantial information about their financials. However, the benefit of penny stock investing is that there’s a possibility of getting good returns as the companies grow. If you are an experienced investor, you can consider investing in some penny stocks.
If you are looking for other investment options apart from penny stocks, visit Navi Mutual Fund and start investing today!
*Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
Ans: Penny stock investments are mostly speculative and subject to many risks. These factors make it easy for you to lose your money, irrespective of the amount that has been invested.
Ans: Con artists can artificially ‘pump’ up the price of penny stock by promoting it as the next multibagger. After the stock price increases, they can then sell off (dump) their investments, leading to large losses for remaining investors.
Ans: Many online brokerages allow investors to buy fractional shares. With this, you can buy a portion of a single expensive stock while paying a fraction of its cost.
Ans: The lack of price history, price quotes and narrow bid-ask prices of penny stocks make it difficult for investors to predict their price movements. Moreover, these stocks are vulnerable to significant price fluctuations and scams.
Ans: To pick a penny stock that can offer multibagger returns, you need to have a complete understanding of a company and its future plans. You also need to have the talent to discover hidden gems that are currently highly undervalued.
Want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research? Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
Stocks
What is Shooting Star Candlestick Pattern in Trading?
The shooting star candlestick pattern is considered to be a bearish reversal candlestick ... Read More »Stocks
What is VWAP Indicator and How to Use it for Trading
The VWAP indicator shows the volume-weighted average market price of a particular stock. You can us... Read More »Stocks
What is Price Action Trading: Its Strategy, Stop Loss and Profit Targets
Price action trading is a methodology in which the trader solely relies on analysing a security’s... Read More »Stocks
What is Buy the Dip Strategy in Trading – Working and Example
‘Buy the dip’ is one of the most common phrases in the stock market. It is sort of a go-t... Read More »Stocks
What is the Black Scholes Model – Formula, Calculation and Assumptions
Among the important concepts in modern financial theory, the Black Scholes model, developed in 1973... Read More »Stocks
What is Iron Condor and What are its Strategies?
Iron Condor is an options trading strategy that involves four options with the same expiration date... Read More »Stocks
What is Harmonic Pattern and How Does it Help in Trading?
Harmonic patterns are one of the most efficient and effective trading patterns. Although they are m... Read More »Stocks
What is a Contract Note and Why is it Important?
Contract note is a legal document containing the details of every stockbroker's trade on a stock ex... Read More »Stocks
What is K-shaped Recovery: Indication, Example and
Economies go through multiple phases in business cycles. One such phase is a recession which is mar... Read More »Stocks
Guide to Book Building – Its Types, Benefits and Process
Initial public offerings (IPOs) are priced as specified by their underwriters. The process by which... Read More »Stocks
Support and Resistance in Trading: Working, Strategies, Uses and Example
Support and resistance are two of the most significant and practical concepts in technical analysis... Read More »Stocks
What is the Inverted Hammer Pattern and How to Identify It?
The inverted hammer is one of the most popular candlestick patterns and is considered essential for... Read More »Mutual Funds
Top 10 Chit Fund Schemes in India in 2023
Chit funds are one of the most popular return-generating saving schemes in India. It is a financial... Read More »Personal Loans
₹15,000 Personal Loan: Features, Benefits, EMI and Interest Rate
Financial emergencies can be short term and you might not always require a large amount to handle t... Read More »Personal Loans
Personal Loan Interest Rates in India – Charges and Processing Fee
Applying for a personal loan? Have you compared the personal interest rates and processing fees? ... Read More »Mutual Funds
10 Best Gold ETFs to Invest in India [2023]
Gold ETFs or Gold Exchange Traded Funds are passively managed funds that track the price of physica... Read More »Health Insurance
TPA in Health Insurance – Full Form, Functions and Roles
TPA (full form – Third Party Administrator) is a licensed intermediary between health insurance p... Read More »Banking
ATM Card AMC (Annual Maintenance Charge): Explained
ATM Card AMC (Annual Maintenance Charge) is a maintenance fee levied by banks every year. This debi... Read More »Mutual Funds
Top 10 Demat Accounts in India [Lowest Brokerage Charges]
A Demat account was created to eliminate the time-consuming and inconvenient procedure of purchasin... Read More »Mutual Funds
20 Best Index Funds in India to Invest in 2023 (27th Jan)
What is an Index Fund? An index fund is a type of mutual fund or exchange-traded fund (ETF) that... Read More »All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.
Start Small. Dream Big.
Start your Investment Journey with just ₹10