What are Penny Stocks?
Stocks that trade at a very low price and have a low market capitalization are referred to as Penny Stocks. Depending on the market capitalization of the company, these stocks are also called nano-cap stocks, micro-cap stocks, and small-cap stocks. Although there is no official rule, Penny Stocks in the Indian stock market are those which have prices below Rs 10.
Low cost: As the prices of these stocks are below 10, investors can buy a quantum of stock units with a small investment.
High-risk: These stocks are issued by mostly small-cap companies. More we invest in small-cap, the more risky our portfolio is but at the same time, chances of getting higher returns increases. These stocks, even though very risky in nature, have a history of giving higher returns when invested carefully, compared to other forms of securities.
Illiquid: Trading stocks in the market is easy but this is not the case with penny stocks. The companies issuing these stocks are relatively unpopular which makes it tough for a seller to find a buyer. Thus, Penny Stocks are considered to be illiquid.