There are different ways to make profits from the equity market. You can invest for the long term, invest money in growth sectors like Artificial Intelligence stocks in India, EV stocks, and many more. Among these, there is an option that is not usually recommended – penny stocks. By investing in penny stocks, you give your portfolio the option to multiply in large numbers, but at the same time, there is a high risk – you may lose your capital. In this article, look at everything you must know about penny stocks.
What are penny stocks?
Let us start with the basics – understanding penny stocks. Penny stocks are those companies whose share prices are traded below Rs 10. They have the potential high returns, but at the same time, they are highly volatile. These are good options for investors looking to take risks. What else you should know about penny stocks? Much more to share.
Features of Penny Stocks
Here are some features of penny stocks:
- Low Price and easily accessible: Since they are priced below Rs 10, it allows investors to own them. Even if you have limited capital, you can purchase these shares in large quantities. Please note that buying large quantities at low prices may not always be better than owning only a single stock of a company with a share price in the thousands.
- High Volatility: These stocks are highly volatile, which makes them risky (more on this later). Given the small nature of business, the market cap of these companies is small and hence vulnerable.
- Limited Information: The regulatory oversight on these companies is not too strict, and you will not find large data associated with their businesses. Therefore, your investment will not be research-based when you invest in penny companies.
Why should you invest in penny stocks?
We have already given you two reasons: they are affordable and have the potential for higher returns. Let us look at some of the other benefits of investing in penny stocks:
- Opportunity of diversification: As an investor, you should have all stock categories in your portfolio for diversification – low risk to high risk. Penny stocks are a high-risk, high-return kind of investment in your portfolio.
- The entry point for Investors: Penny stocks are not recommended to new beginners. At the same time, it provides a low-cost entry point to new investors who want to understand how the stock market works without putting in large sums of money.
- Thrilling Experience: Some investors or traders want to enjoy the market thrill – get high returns by taking risks on their capital. Penny stocks can give you that kind of thrill.
Risks Associated with Penny Stocks
We have already mentioned many times that penny stocks are risky. We want to emphasize more on this point by highlighting the different risks associated with penny stock investment. Here are some risks:
- Limited Liquidity: Many penny stocks have low trading volume, and at times, it may become difficult for you to buy and sell stocks of these companies in large quantities. In other words, you may make staggered entry, but limited liquidity may make exit difficult.
- Less Transparency: Many companies in the penny stock universe do not adhere to the same level of financial reporting as other small and midcap listed companies. As a result, more often than not, investors invest in penny stocks without any research, and it takes their investment more towards gambling.
- High Volatility: The last risk is around volatility – a vital risk to focus on. Penny stocks are volatile, and hence, it means that in a matter of a few trading sessions, your profit can turn into big losses (the opposite can also happen).
Top 5 Penny Stocks in India
Here are some of the penny stock companies you can explore.
Biogen Pharmachem Industries: It is primarily engaged in the manufacturing and trading of pharmaceutical formulations. The company’s product range includes tablets, capsules, and liquid orals. It operates in the domestic market.
Diligent Media Corporation: The company is involved in the printing and publication of newspapers. A significant portion of its revenue comes from advertising, leveraging its print and digital media platforms to provide advertising solutions for businesses.
Sea TV Network: It is a television broadcasting company. It operates in the television broadcasting sector, offering entertainment and news channels to its viewers. The companies understand the growth of digital media. Therefore, it is exploring opportunities in online streaming and digital content distribution to meet the changing consumer preferences.
Ekam Leasing and Finance: They are engaged in the leasing and financing business. The company provides financial services, including leasing and hire-purchase of various assets.
Advik Capital: A financial services company that offers a range of financial products and services. It includes investment banking, stockbroking, portfolio management, and other financial advisory services.
| Company | Sector | 1-year return | 5-year return |
| Biogen Pharmachem Industries | Pharma | 87% | 585% |
| Diligent Media Corporation | Media | 125% | 1402% |
| Sea TV Network | Media | 211% | 135% |
| Ekam Leasing and Finance | Financial | 35% | 66% |
| Advik Capital | Financial | 46% | 100% |
*Note: These companies are picked randomly and are not investment advice. Do your own research or check your Jarvis Invest services to create your equity portfolio.
Before you go,
You may have been considering investing in penny stocks. After reading this article, we hope that you understand what to expect from such an investment. One of the best things you can do is to consult the best SEBI registered investment advisor to help you pick the right stocks based on your risk profile and investment horizon.