Should you invest in penny stocks?

By Angel Broking | Published on 7th April 2021 | 69

What are penny stocks?

You must have heard of penny stocks while browsing through anything related to the stock market. Well, these stocks are small-cap company stocks that are priced very low. This can seem alluring to many investors as they would be capable of buying more shares with the capital they can expend.

For example, consider an established company’s share price to be Rs. 5,00 and a penny stock to be Rs. 5. If an investor has a capital of Rs. 10,000, they would be able to buy only 20 shares of the established company. Whereas, with the same capital, they would be able to purchase 2000 shares.

Features of penny stocks

  1. Low cost

Usually, penny stocks in India are priced below Rs. 10. So, you would be able to buy a large number of shares with a lower capital available.

  1. High returns

When compared to other forms of securities, penny stocks offer a very high return of investment. As these shares are that of a small-cap company, there is an enormous potential for growth. However, with high returns come high risk and one should be ready for both.

  1. Unpredictable pricing

Several penny stocks may not rise up to adequate pricing. However, it is also possible for penny stocks to surge above the average price during a sale.

Are there any risks?

While penny stocks can be profitable sometimes, it is also very important to know the risks of penny stocks because the potential for loss is high with these kinds of investments. Here are some risks that come along when you invest in penny stocks.

  1. Low liquidity

The number of shares available for the capital you decide to invest in the stock may seem high. There can be price movements that are quite high in terms of percentage. Such volatile price movements are a red flag. Penny stocks can even be difficult to purchase because there may be no sellers when there is a great demand.

  1. Fluctuating rewards

There have been scenarios where the price of the share was expected to increase but tool a turn to continuously fall over weeks and months. This caused a severe financial loss for many.

  1. Lack of consistency

Turnaround for small companies is difficult. Many investors invest in penny stocks hoping that it would turn into a bluechip someday. However, in many cases, it doesn’t happen so. Very rarely, small-cap companies show a consistent and profitable turnaround over the years. In other cases, penny stocks are inconsistent with their returns.

6 penny stocks that are performing really well

Compared to last year, equities in NSE have been trading higher this year. Because of this, along with the remaining other stocks like bluechip companies, several penny stocks also experienced a surge in pricing. Here are 6 penny stocks that experienced a gain of over 40% this year.

  1. GTL Infrastructure Limited

The stock price of GTL Infrastructure Limited grew from Rs.0.72 on the 31st of December 2020 to Rs. 1.13 on February 5, 2021. This surge amounted to a 56.94% gain for this company.

  1. Digispace Technologies

Digispace Technologies has observed a 104.81% gain. This gain is a result of its increase in share price from Rs. 23.29 as of December 31, 2020, to Rs. 47.70 on February 5, 2021.

  1. Trident Limited

This stock’s price rose from Rs. 9.88 on the 31st of December in 2020 to Rs. 14.12 on the 5th Of February, 2021, amounting to a 42.91% gain.

  1. Centrum Capital

So far, the stock price of Centrum Capital has increased by 44.51% as the stock price raised from Rs. 16.85 on December 31, 2020, to Rs. 24.35 on February 5, 2021.

  1. Ashriya Limited

The share price of Ashriya Limited went up from Rs. 19.50 in December 2020 to Rs. 27.30 on February 5, 2021, showing a 40% gain.

Conclusion:

Penny stocks can seem very alluring and attractive due to its extremely low prices of their stocks. They can result in high returns, however, you should also be cognizant of the risks that come along. So, before you invest in penny stocks, research the company and understand its fundamentals. You can invest in penny stocks through Angel Broking with its user-friendly trading platform.