In India, there is a different type of securities that are trading in the stock market and from which one of these is the penny stock. Investors or traders are investing in penny stocks to get the benefits of diversification. In this article, you will get to know the definition, advantages, disadvantages, risks and many more about the Penny stocks India. Let’s read further about this article.
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What is Penny Stocks in Trading?
Penny stocks are the kinds of stocks that are traded at a very low price and also has a low market capitalization. In India, it is generally traded at Rs 0.01 to 10 per share. These stocks are usually illiquid and are traded at smaller exchange board. These are the ultra micro-cap companies with low market capitalization.
Advantages of Penny Stocks
In penny stocks, not every trader used to invest in this largely. The regular investors do not use to invest in such stocks because of the fear that the fundamentals are not clear. Because of the low market capitalization the institutional investors also stay away from investing it into the penny stocks.
Due to these reasons, there is also an advantage arise when the investor follows his daily plan system with discipline then he can make money from the penny stocks also by learning properly about the fundamentals. If the investor is good at the fundamentals and ready to buy the stocks at a very low valuation then he can make profits from the penny stocks also. So, these are the best advantages of Penny Stocks.
Disadvantages of Penny Stocks
The disadvantage of penny stocks is that the fundamentals are not clear. The investor does not get the proper access from the research reports and even the credibility of the audited reports is also questionable. They also have extremely low volumes available for the shares that are needed to be traded.
Risks for Investing in Penny Stocks
Because these are usually radical tiny corporations, their compliance with the law and therefore the securities market laws could also be casual. This could attract adverse regulative action from the stock exchanges which can culminate in the suspension of the certificate from trading.
The other risk is that the Stock Exchanges (BSE & NSE India) imposing higher and lower circuits on the businesses to forestall excessive speculation in them.
Rules for Investing in Penny Stocks
- Diversify the portfolio widely and have a basket of penny stocks.
- Monitor the performance on a daily basis.
- Invest with only petty amounts.
- Set a strict loss
- Be suspicious of the research reports that paint a picture.