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What is penny stock?

    If we talk about in indian rupees if stock price is greater than 0 and
less than 20 then it is called penny stock. So as the price indicates these
companies are small and very young in their business and might have entered
into stock market to raise capital to improve their business. These
companies will have the management that is not well known to outside world
and usally no infomation / news is available about what is going on inside
the company. But don’t not get confused that all new IPOs are penny stocks.
Some companies will enter the market after very successful in their domain
like TCS, DLF, suzlon etc.

So that means I should not invest in penny stocks?

      No it is not entirely correct. You can invest in penny stocks only
after doing your research on the company and confirmed news about their
business deals. And do remember that today’s penny stocks are may be
tomorrow’s big stocks. So it is an art to pick right ones at correct time.

Ok what are the risks associated if I invest in penny stocks?

   1, Usally investing in penny stocks will be considered as speculative.

   2. These stock prices can be easily manipulated either by management or
some bad brokeragwill sell these stocks at higher prices , so normal
retails investors will be affected and loose their money.

   3. penny stocks usally will fall very fastly compared to index stocks
when market is going down. This is because in case of big stocks there will
be buyers at all stages ( these buyers may be institutional investors or
FII or HNI or retail investors), but incase of penny stocks you can not
find buyers when market is going down because retail investors normally
stay out of market when market is going down and also very less interest by
institutional investors in these stocks. so sellers will try to sell
whatever price they get and get out of these stocks.

what are the tips to invest in penny stocks?

  1. invest only after researching about the company, management, business
prospects and market trend.

  2. don’t invest in these stocks because you friend referred it.

  3. decide the target price before investing and try to book profit after
reaching it target price. Don’t wait thinking that the price may go up
still because usally penny stocks will fall fastly if market is going down.

  4. Always maintain stoploss for these penny stocks.

  5. And it is better get advice from well researched stock brokerage firms
like motilaloswal etc.

  Now a days you find so many websites on internet those claim that they
recommend you some stocks in the price range from 10 to 30 rupees and will
give you higher returns. See the following websites thar are recommending
penny stocks.

like 10paisa.com, midcaps.in etc. My advice is if you want to subscribe to
these websites, you can subscribe but don’t follow their recommendations
blindly and do research about the companies and invest. Happy investing.