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Understanding Penny Stocks in India

18 Oct 2023

Investing in the stock market can be highly remunerative, particularly if a trader makes educated decisions. Technology allows for trading to be done in the comfort of one’s home via the internet. The variety existing in the market allows for traders to invest in well-established, mid-range and / or relatively small companies. Several traders, however, are known to flock towards well established or mid-range companies and invest in their stock. These are of particular appeal due to the reputation they tend to acquire for their steady revenue generation which reaps profits. Investing in small companies, however, can be appropriate for a number of investors.

- Penny stocks explained?

Penny stocks refer to the common shares of small public companies which trade on an infrequent basis thereby limiting their liability or number of ready buyers in the marketplace. In India, penny stocks are traded for an amount of ₹10 or less. Since these stocks aren’t traded with frequency, their prices are subject to sudden and high levels of volatility. This means that investors must be careful when investing in penny stocks. That being said, such investments have a number of advantages which ought to be considered.

- Why are they Valuable?

Penny stocks are a great investment option for those just entering the world of trading. They provide greater room for experimentation and allow new investors to gain an understanding of how to trade. Their low prices make them affordable options – especially since they minimize the potential losses investors might incur. Since the price of such stocks is primarily speculative in nature, a professional or technical analysis isn’t required to trade with it. Since penny stocks barely capitalize the market, their stock experiences infrequent trades. Investors holding such shares can make use of a staggered buying or selling approach in order to accumulate or exit the shares. 

Penny stocks offer some small businesses a path by which to receive funds from the public. Prior to moving into a larger marketplace, some companies might take advantage of offering penny stocks first to potential investors. Their low prices allow for significant upside in share appreciation. However, prior to investing traders must consider the increased risks they open themselves up to when investing in penny stocks.

- Alternatives to Penny Stocks -

Mutual fund investment is a good, reliable alternative for investors to consider. They provide investors with a diversified portfolio made up of stocks, bonds or other securities. These portfolios are professionally managed for the investors for a low price. The online presence commanded by mutual funds today makes them accessible to a wider range of investors. The internet can be a useful tool to provide information on mutual funds to invest in now.

Conclusion -

Potential investors must be equipped with sufficient information in order to make sound investment decisions. Companies which issue penny stocks, however, might not always provide adequate information pertaining to their performance or future plans. This implies that existing information pertaining to the company and its stocks might not always be credible.


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