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What is Penny Stocks ? Definition of Penny Stocks,


All About Penny Stocks


    Penny Stocks Meaning

    Penny stocks refer to the common shares of small public companies which trade at a very low price, have very low market capitalization, are mostly illiquid and are infrequently traded. Due to the low volume of trading, their prices are subject to sudden high and high levels of volatility. Penny stocks in the Indian stock market have prices below Rs. 50 & have market capitalization below Rs. 5,000 cr. 
    Penny stocks are usually considered high-risk investments. you can see penny stocks in every sector.

    Examples of Penny Stocks are :- Suzlon Energy, Trident, Yes Bank, Vodafone idea shares.

    What are its Characteristics?

    The characteristics of penny stocks are –

    • High-returns: These stocks provide much higher returns compared to other forms of securities. As such shares are issued by small and micro-cap companies, they have huge potential for growth. Consequently, penny stocks are risky as they can wipe the investment value also.
    • High Risks: Penny Stocks are investment of high risks as they can eat up investors savings at any time.
    • Illiquid: Penny stocks in India are illiquid in nature because educated investors don't want to invest in Penny stocks unless and until they see growth, companies issuing them are relatively unpopular.
    • Low-cost: In India, penny stocks are usually priced lower than Rs. 50. Therefore, you could purchase a substantial amount of stock units from penny stock list with a small scale investment. 

    What are the Risks Associated with Penny Stocks?

    • Can Be Zero: Penny stocks can be anytime zero because of its low value and investors can loss there savings. latest example is DHFL Shares Delisting & Videocon Share Delist.
    • Limited information: Given the fact that companies issuing penny stocks are start-ups, there exists a dearth of information on their financial soundness, past performance, growth prospects, etc. Individuals might end up investing in them half-wittingly. Therefore, conduct thorough research into the list of penny stocks in India before investing.
    • Scams: Penny stock scams are commonplace in financial history. One such popular method is “Pump and Dump”. Companies and operators purchase a considerable amount of penny stocks resulting in value inflation which attracts other investors to follow the hype.

    Conclusion

    Penny stocks can be good investment options for most people or newbies, they do carry some risks, just like all kinds of equity. The price movement of such stocks can be unpredictable at times, thereby increasing the risk factor. However, these risks can be mitigated to a certain extent if you make sure to choose the right penny stock before investing. 


    If you want to invest in Penny Stocks invest that much amount only if it becomes zero or wiped out your capital or life must not be affected make sure to invest very little amount in it according to your income never allocate more than 0.5% of your portfolio for penny stocks.

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