Investment in share market is always very popular throughout the world and it is one of the most common markets of investment to earn profits.
In India the share market is one of the common markets for investment along with mutual funds.
Share market offers a wide range on investment options and every type of investor has investment opportunities to invest in share market whether you are a conservative investor or high risk tolerating liberal investor.
There is a wide misconception about share market amongst new investors that investment in share market required large sum of money but that is far from truth, in fact, an investor can begin its investment with a very low amount of money.
Share market has shares of different caps such as large, mid and small cap which an investor can choose as per his/her investment goals at the same time share market has penny stocks which usually traded as very low price.
Penny stocks can be an excellent investment option if the investment is made after professional advice.
What are penny shares?
Penny shares are stocks which are traded on very low price, In India penny stocks are usually trade at a very low price.
These companies are micro cap companies with a market capitalization of fewer than 50 crores Indian rupees.
Penny stocks can be very good investment option if a company has strong fundamentals or balance sheet.
Top 10 multi beggar shares of 2020
| Company name | LTP Rs. | % Gain In Month |
| RRIL Ltd. | 3.81 | 105.95 |
| Garnet Construction Ltd. | 18.71 | 103.81 |
| Chemo-Pharma Laboratories Ltd. | 19.43 | 102.82 |
| SEL Manufacturing Company Ltd. | 2.27 | 90 |
| Euro Ceramics Ltd. | 3.17 | 86 |
| Bacil Pharma Ltd. | 4.74 | 84.44 |
| ISMT Ltd. | 11.06 | 68.85 |
| WS Industries (India) Ltd. | 4.85 | 66 |
| Coral Newsprints Ltd. | 6.09 | 60.26 |
| Swasti Vinayaka Synthetics Ltd. | 5.19 | 58 |
Advantages of investing a penny in penny shares
Low price
Penny stocks are traded in the share market at a very low price, which simply means you do not need a large sum of money to invest in these shares.
Price of these shares usually floats between 1-10 rupees which mean in few thousands of rupees you can buy hundreds of penny shares.
Penny shares allow you to begin your share market investment with a limited amount of money.
High gains
Penny stocks offer very high potential gains because most of these companies are in growth phase.
If companies fundamentals are strong than most possibly its stock price is going to rise over the period of time.
Increase in price can offer you high potential gains since stocks of these companies are traded at a very low price which allows you to buy thousands of shares within very limited amount of money.
If you have a couple of thousands of rupees or limited money than you cannot buy mid or large-cap shares in large quantity.
For example, if an investor had bought 10 thousands penny stocks of a company and each share cost 5 INR, which means the total value of his/her investment in 50,000 INR.
If share price rise from 5 INR to 9 INR within the period of one month, which simply means the total value of 10 thousand shares value rose from 50,000 to 90,000 INR.
In this scenario, an investor can earn the amount of 40,000 INR within a very short period of time.
It is always important to check the fundamentals of the company and along with its yearly performance if these indicators are not positive than most likely share price of the company is not going to rise.
Minimize the risk of losing large money
As we already know that penny stocks are traded at a very low price which simply means you are not investing a very large amount of money and within the low amount of money you can buy thousands of penny stocks.
Just in case price of share market won’t grow as per your predictions than most likely you will lose a very limited amount of money but in case of mid or large-cap stocks this lose can much larger as compared to penny stocks.
Disadvantages of investing a penny in penny shares
Less liquidity
Since most of the penny stocks belong to new companies which are newly started so large or institutional investors do not invest their money in these stocks which simply means these stocks will have low trade volume.
Institution investors invest money in large amount which increases the overall volume of shares since penny stocks have very low to no amount of institutional investors so their volume remains low.
Low volume simply means if you bought a penny stock and after certain gains, you want to sell your stocks but due to low volume you will find it hard to sell your shares or even if you are able to sell to but the process will take a long time.
Unpredictability
Most of the penny stocks belong to newly register companies or companies with micro-cap so it very hard to access their balance sheet or fundamental data.
If you do not have the entire fundamental and technical details of a particular penny stock than it can be very risky to invest in that stock.
Having very little to no past record makes penny stock very unpredictable.
Conclusion
Penny stocks allow investors with low amount money to begin their investment in share market at the same time it is extremely important to invest in penny stocks only after a detailed analysis of company’s fundamentals or invest only after professional advice.
There are various risks and rewards associated with penny stocks, investors are advised to do all study and research carefully before making any investment.
