What are Penny Stocks – How to Choose Penny Stocks?

Penny stocks are the stocks that possess minimum pricing. Those companies which have low capital, tend to offer stocks at considerably low prices, and such stocks are known as penny stocks. They are also known as nano cap stocks, micro cap stocks, small cap stocks, etc. These stocks seek significantly low investments from the investors and also possess a beta value less than 1. Low Beta value showcases their low volatility and little to no risk of losses.

If you are a beginner in stock investments, it is advisable for you to invest in penny stocks first to understand the market movement. After expertise in this category, you should invest your funds in High Beta Stocks.

List of some Penny Stocks in India

How to choose Penny Stock for investing?

1. Consider the risk you can afford and choose whether the stock is right for you.
2. Since penny stocks are highly volatile, understand the market condition thoroughly.
3. Make sure to do your part of fundamental and financial analysis of the company.
4. Investigate the company’s financial reports and understand the true valuation and price of the share.
5. Understand your requirement and investment horizon.
6. Monitor your investment regularly.

Advantages of investing in Penny Stocks

1. Low Risks

Penny Stocks do not possess many risks and also do not show many fluctuations during volatile market movements. Therefore, these stocks are considerably safer choices for investments. However, it is still advisable to conduct thorough research about the company before investing to avoid any scams.

2. Long Term Reliability

Many companies issuing penny stocks may become multibaggers in the long term. Therefore, these stocks can give huge profits to the investors who are patient enough to wait for the evolution and success of these companies. Furthermore, as these stocks do not show much volatility even during massive market movements, you will never run out of the trading game. Thus, penny stocks are for the long term.

3. Inexpensive:

In the Indian Stock Market, penny stocks are as inexpensive as Rs. 10 per stock. In fact, most of the penny stocks are even less than Rs. 10. These stocks are pocket friendly and very convenient for small scale investors to buy and control. Investors can buy a huge number of penny stocks at once and can make marginally high profits if the stocks do well in the market.

Disadvantages of investing in Penny Stocks

1. Illiquid

The companies offering penny stocks are usually new and unpopular. Due to this, they have fewer investors and shareholders. Therefore, in some unprecedented or emergency situations, they cannot back up the investors effectively.

3. Low Trading

Due to low capitalisation in the penny stocks, they are often less traded as compared to the high beta stocks. Those who wish to accumulate wealth do not prefer investing and trading in penny stocks. These stocks are also highly affected by inflation, making them a less preferred choice in online stock trading.

To sum up

Penny stocks are the best choices for those who are still beginners in online stock trading. However, just like other equity, there are risks associated with Penny stocks, as well. Thus, it is advisable to invest in these stocks only after studying and gathering complete information about the company and market movements.

Also read: Best Stocks to Invest Under Rs. 20

Here are some more insightful articles on stock market investing which will walk you through the basics in buying & selling shares, building of strategies & much more.

Happy Investing 😇

Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.