by Penny stocks are a form of market traded security which attracts minimal pricing. These securities are mostly offered by companies with lower market capitalisation rates. Therefore, these are also called nano-cap stocks, micro-cap stocks, and small-cap stocks, depending on the company’s market capitalisation.
A company’s market capitalisation rate is determined based on the product of the current price of its shares or stocks and 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 such as National Stock Exchange and Bombay Stock Exchange. Penny stock lists are often found in the lower sections of such stock exchanges or lesser-known stock exchanges.
The features of penny stocks are listed below:
- 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 vast potential for growth. Consequently, penny stocks are risky, given its intensity of response to market fluctuations.
- Illiquid: Penny stocks in India are illiquid in nature, given the fact that the companies issuing them are relatively unpopular. It becomes challenging to find individuals who are willing to purchase these stocks, thus offering little aid during emergencies.
- Low-cost: In India, penny stocks are usually priced lower than Rs. 10. Therefore, you could purchase a substantial amount of stock units from penny stock list with a small scale investment.
- Unpredictable pricing: Penny stocks might not attract adequate pricing during the sale. It might result in a lower or non-existent profit margin. Similarly, these stocks could also attract a price significantly higher than your cost; therefore, resulting in a considerable profit.
Penny stocks should be included in your portfolio. Here are the following reasons as to why:
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Multibagger:
Some of these stocks have the potential to evolve into multi-baggers. It means shares which yield in multiples of the investment amount. If specific security reaps double its investment amount, it is called a double-bagger, and if it returns ten times its investment value, it is considered a ten-bagger.
Including them in your portfolio could exponentially increase your return prospects and might outperform the large and mid-cap funds. However, conduct thorough research into the penny stocks list to gauge which stocks have the potential to be multibaggers.
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Inexpensive:
Investing in these stocks is comparatively cheaper. Hence, you can invest in them without losing any significant portion of your investment finances. Allotting a small portion of your portfolio to purchase the best penny stocks for 2019 in India would still allow you the leeway to invest in other, more secure investment options while considerably reducing the risk factor associated.
Forms of risks associated with penny stocks. These are:
- 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 international financial history. One such popular method is “Pump and Dump”. Companies and scammers purchase a considerable amount of penny stocks resulting in value inflation which attracts other investors to follow the hype.
