What are Penny Stocks-Features & Investment Options

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What are Penny Stocks?

What are Penny Stocks-Features & Investment? Penny Stocks are a sort of market traded security which attracts minimal pricing. These securities are mostly offered by companies with lower market capitalization rates. Therefore, these also are called nano-cap stocks, micro-cap stocks, and small-cap stocks, counting on the company’s market capitalization .

A company’s market capitalization rate is decided supported the merchandise of the present price of its shares or stocks and therefore the number of outstanding shares i.e. NAV of shares x number of outstanding stocks.

Based on this factor, companies are indexed in recognised stock exchanges like National stock market and Bombay stock market . over the counter stock lists are often found within the lower sections of such stock exchanges or lesser-known stock exchanges.

What are its Features?

The features are listed below –

  • High-returns

What are Penny Stocks-Features & Investment? These penny stocks provide much higher returns compared to other sorts of securities. intrinsically shares are issued by small and micro-cap companies, they need vast potential for growth. Consequently, penny stocks are risky, given its intensity of response to plug fluctuations.

  • Illiquid

Penny stocks in India are illiquid in nature, given the very fact that the businesses issuing them are relatively unpopular. It becomes challenging to seek out individuals who are willing to get these stocks, thus offering little aid during emergencies.

  • Low-cost

In India, penny stocks are usually priced less than Rs. 10. Therefore, you’ll purchase a considerable amount of stock units from over the counter stock list with alittle scale investment.

Unpredictable pricing: Penny stocks won’t attract adequate pricing during the sale. it’d end in a lower or non-existent margin of profit . Similarly, these stocks could also attract a price significantly above your cost; therefore, leading to a substantial profit.

Why do you have to Invest in Penny Stocks?

What are Penny Stocks-Features & Investment Penny stocks are often considered successful or miss security. Companies issuing them might grow into an outsized organisation and yield above average returns or tank in their initial years, incurring huge losses.

What are the Risks related to Penny Stocks?

Given the size at which the businesses offering such stocks operate, they’re susceptible to huge risks. These stocks heavily believe the market conditions for growth in their value.

Apart from the essential perils which accompany any market-linked securities, there are other sorts of risks related to penny stocks. These are –

  • Limited information: Given the very fact that companies issuing penny stocks are start-ups, there exists a scarcity of data on their financial soundness, past performance, growth prospects, etc. Individuals might find yourself investing in them half-wittingly. Therefore, conduct thorough research into the list of penny stocks in India before investing.
  • Scams: over the counter stock scams are commonplace in international financial history. One such popular method is “Pump and Dump”. Companies and scammers purchase a substantial amount of penny stocks leading to value inflation which attracts other investors to follow the hype.
  • However, once enough buyers have invested in such stocks, such companies and scammers dump their shares. This leads to an instantaneous lowering useful followed by losses on the scrupulous investors’ end as they struggle to sell it.
  • When you are browsing through the list of penny stocks in India, ensure to conduct thorough research on the respective companies. Gather information on their financial soundness, stability, growth prospects and any diary on their operations.
  • Companies with integrity and potential will offer the purchasers enough knowledge of the mentioned factors to form informed decisions.

What are the choice Options  in India?

What are Penny Stocks-Features & Investment  Individuals also can plan to invest in other investment options which are better suited to their objectives and risk appetite. Mutual Funds are one such option which is increasingly gaining popularity within the market. MFs are investment pools which involve multiple individuals investing during a single fund which is then wont to purchase securities.

A few Mutual Funds investment options are listed below –

  • Large and mid

cap equity funds: this type of MFs is used to get equity shares and stocks from large-cap and mid-cap enterprises. These funds have moderate return capacity and entail lower risk compared to penny stocks.

Debt Funds: These funds are wont to purchase fixed income securities and are available with a lower risk factor. However, the return potential on such funds is restricted to 12%.

  • Hybrid Funds

What are Penny Stocks-Features & Investment These funds are employed to get a mix of market-linked and glued income securities. counting on the constitution, the danger and return factor varies. Hybrid Funds are an excellent choice to diversify your investment portfolio and balance the reward and peril elements of it.

These funds comprise of a huge volume of securities available within the market including large-cap stocks, mid-cap stocks, small-cap stocks, treasury bills, government bonds, debentures, etc. aside from penny stocks.

Remember to conduct diligence before selecting the proper investment option consistent with your financial objectives.

5 belongings you must know before investing in penny stocks in India

1) Don’t check out the share price, but check out the value: Penny stocks are available at a comparatively low share price. Share price would tempt investors to shop for in such stocks. for instance , Infosys stock price is Rs 2,180 per share. On the opposite hand, one among the penny stocks like GV Films is Rs 0.58 per share. Now if you’ve got Rs 10,000 to take a position , you’d get only 4 Infosys Shares, while on the opposite hand you’d get 17,240 shares of GV Films. Here one shouldn’t think what percentage shares they’re getting, but what value these stocks offer. i’m not saying this over the counter stock is sweet or bad, but an investor should assess how good such a stock is before investing in such stocks.

2) Low volumes means low liquidity: Several Penny stocks generally trade at low volume. Means if you would like to sell and are available out, there won’t be any buyers. Hence invest in penny stocks that has high volume in order that you’ll liquidate if required. E.g. Odyssey Corp share price is Rs 4.23 and avg trading volume is 24,200 shares only. the utmost amount traded is merely Rs 1 Lakh. Such stocks have less liquidity because it would depend upon demand from buyers.

3) Upper circuit and lower circuits: Penny stocks have upper circuit and lower circuit. Upper circuit means a stock price cannot increase beyond a pre-determined percentage move. Generally it might be 5% to 10%. Lower circuit on the opposite hand means a stock price cannot reduce by specified percentage. As an investor, you ought to know that you simply cannot double your money during a short span, simply because a stock has locked in upper circuit for few days. Penny stocks may even see upper circuit for a couple of days and may see the lower circuit by few days supported demand from buyers.

4) Brokers / Promoters can manipulate share prices: Since penny stocks have low volume, share prices for such stocks are often easily manipulated by market participants, stock brokers or promoters of the corporate . If a over the counter stock price is reaching upper circuit a day with none news about the corporate , it clearly indicates that somebody is manipulating the share price. As an investor if you hear a positive news about the corporate and think the longer term prospects are good, you’ll invest during a company irrespective whether it’s hitting upper circuit or not.

5) Ignore success stories: Many stock brokers, websites, blogs, etc. indicate a hit story about penny stocks. While these look good, nobody want to speak about hidden stories about investors losing money on penny stocks. Many brokers charge high fees, giving over the counter stock recommendations indicating a hit story saying a over the counter stock raised by 100% or 500%. Investors fall for that trap, invests and loses money. As an investor, you ought to understand why a over the counter stock price has gone up, the explanations behind that and future prospects. If you’re convinced by this, you’ll adopt similar strategies for other penny stocks and invest supported such strategies.

Things you should realize penny stocks

Now that you simply know what penny stocks are, let’s take a glance at a number of the key belongings you should realize these shares before you trade or invest in them using a web trading account.

Penny stocks are perfect for beginners

If you’re a replacement investor and you’re just getting started with trading within the stock exchange , penny stocks are typically good bets. they provide a greater level of freedom to experiment, thus allowing you to find out the ins and outs of trading first-hand. Since the worth of a over the counter stock is usually kept low, you don’t need to invest tons of your capital to start out trading within the stock. This also helps keep your losses to a minimum. All you would like may be a share trading account and a few funds to urge you started.

Penny stocks can generate high returns

What are Penny Stocks-Features & Investment Contrary to public opinion , not all penny stocks are destined to fail. There are many attractive companies with good financials and growth potential that are being traded for pennies. By identifying these companies accurately and investing in them, you’ll generate good returns and watch your initial investment grow. However, bear in mind that you simply may need to carry your investment for a extended period of your time so as to urge good returns.

Penny stocks don’t have an entry barrier

You don’t require much to urge yourself started when handling penny stocks. the worth movement of penny stocks are mostly speculative and don’t follow or require methodical technical analysis. This makes them the right choice for you if you’re just making your entry into the planet of stock exchange trading. There are not any certifications or extensive knowledge in trading required to urge started with trading in penny stocks. Since you simply require a web connection and an online trading account, there are absolutely zero entry barriers with penny stocks.

Penny stocks are generally low on liquidity

Since the market capitalisation of penny stocks is low, these shares aren’t very frequently traded within the stock exchange . thanks to the low volumes of trade, it’d be challenging to seek out both prospective buyers or sellers. you’ll overcome this limitation to a particular extent by holding the shares of penny stocks for the future . Also, you’ll adopt a staggered buying or selling approach to accumulate or exit the shares.

Read Also :

How to Evaluate a Stock Before You Invest

How to Analyse a Company’s Debt Management Ability

Intraday Trading Strategies – Most Successful Intraday Strategy

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