Have you ever heard people suggesting to stay away from the stock market if you have a low investment corpus? However, it is a myth that the stock market asks for a minimum amount of investments. There are some hidden gems for investors that can cost as low as ₹10. The only requirement for investing is a Demat account.
As of October 2024, there are 3.84 crore active investor (Source: NSDL) accounts in India. These investors have varied objectives, and investment capacities and the stock market is a potential avenue to suit them all if it matches their risk appetite. One such facility is penny stocks. Investors with very low investment corpus can purchase these stocks.
Investors can buy these stocks when they are undervalued, and when there is a rise in penny stock prices, they may gain a significant difference. However, like every other investment aspect, penny stocks also need informed research to manage the risk incidence.
Let’s discuss the aspects of penny stocks returns and risk to effectively manage the investments.
Penny stocks in India
In the stock market, there are some companies which are comparatively new in the market or have lower stock prices. These are known as penny stocks. Due to a large number of varied investor choices, penny stocks in India may be a suitable option for many. These companies have low market caps, usually due to their small size or low price.
Investors can invest a small corpus, and when there is a rise in penny stock prices, these stocks can be sold to gain potential profits. In India, investors can also find suitable penny stock investments on the Small and Medium Enterprise (SME) Market by the National Stock Exchange and Bombay Stock Exchange. However, like every two-edged sword, penny stocks are also accompanied by some risks and rewards.
Dive deeper into this interesting topic: Penny Stocks – Definition, Features, Benefits, and Risks
Penny stocks return
The new businesses, listing freshly in the market, may have low stock prices in the initial years. Such penny stocks may be a potential investment opportunity to gain with the substantial rise in penny stock value over the years. Moreover, the low prices may provide the opportunity to diversify in different sectors with a minimal investment cost.
On a broader view, penny stocks help create an inclusive environment and even allow investors with a low corpus to participate in the stock market. However, to ascertain the potential opportunity, investors should thoroughly research or seek any expert advice before investing.
Perils of penny stocks investments
Along with the many benefits of these types of stocks, there are some disadvantages. Penny stocks in India are used as a mode of an investment scam like pump and dump. In this, a scammer purchases a large amount of stocks at a low price, which can pump its price. Other retail investors observe this growth and invest in that stock, which further increases its price. Later, the scammer sells those stocks, and the price shockingly falls. It affects other’s investment value.
While investing in penny stocks, investors should take care of such issues. Moreover, these stocks are also prone to liquidity and volatility risks. Investors need to constantly monitor the penny stocks returns to avoid any mishaps with their investments.
Due to these risks and returns, investors need to take care of certain aspects while seeking penny stock investments.
Remember this while investing in penny stocks!
- While regularly monitoring the investments, investors should be aware of certain warning signs such as fluctuating prices, heavy purchase or sale of stocks, regulatory guidelines, and so on. As discussed, the lower prices of penny stocks may provide scammers with the chance to dupe retail investors through scams like pump and dump.
- Every investment should be preceded by thorough research. Investors can refer to different authorised research reports, align with investment aspirations and check their risk appetite.
- It is a myth that stock market gains are based on luck. Investors can earn penny stock returns with due research and not just luck.
- Investors should consult their financial advisors to get the correct market estimations.
Explore technology sector stocks: Best IT Sector Penny Stocks to Invest in India for 2024
Summary
Penny stocks in India can be a potential investment opportunity to cater to a large investor population. However, they are accompanied by some perils and benefits. It can help investors diversify and gain from potential undervalued stocks. Investors need to be alert to these stocks. One needs to monitor the liquidity, fluctuations and market regulation of such penny stocks.
Are you willing to explore the unique semiconductor sector in India? Here’s your guide: Top Semiconductor Penny Stocks in India
FAQs
- How long should one hold penny stocks in the portfolio?
There are no prescribed time limits for investments in penny stocks. Even experts do not suggest a particular time horizon. The decision is solely dependent on the stock price movement and desired potential return level according to the investor’s aspiration and research. It may also differ for every penny stock.
- Are penny stock companies listed on the market?
Yes, penny stock companies are listed on the exchange. They may have a small market capitalisation and lower share price. There are also some companies with these characteristics whose shares are unlisted and can be traded over the counter.
- What are the warning signs in penny stocks?
These types of stocks have an inherent risk of volatility, and if it is not suitable for an investor’s risk appetite, investors need to consider it as a warning stock. Moreover, a consistent lack of liquidity is also a crucial factor. Investors should seek the fundamentals of the company to avoid any shock.
- Is only luck responsible for earning good penny stock returns?
In the stock market, a myth crediting major success or failure to an investor’s luck is prevalent. However, an informed investment decision backed by research and suitable professional help is the real key to it. Also in penny stocks, if the company is reliable, then investors may earn potential returns in the longer run.
- Are most penny stocks fraud?
It is a myth that penny stocks are low-priced because they are unreliable or fraudulent. Many factors contribute to the low price of a stock. Scammers do seek potential opportunities for fraud at low prices, but all penny stocks are not part of it. If investors identify potential undervalued stocks, with fundamental sound companies, they may enjoy significant returns in the future.
