The stock market offers you several opportunities to grow your money. You can conveniently invest your money and buy different stocks to make a solid investment portfolio. There are numerous stocks to buy. You can consider stocks of top companies from different sectors, the ones that have huge future potential to grow, stocks that can give higher returns in the short term, or the ones that give generous dividends. Investors choose stocks for their portfolio as per their financial goal, risk appetite, and expectations. But do you know that there is yet another category where you can invest your money and get the chance to earn substantially higher returns with very low investment? In this article, we will learn about shares below 1 rupee and the reasons you should include them in your portfolio.
Shares below 1 rupee are generally known as penny stocks. These stocks, as the name suggests, are the ones that are usually traded below Rs 10. Although penny stocks bring their risks of investment, they are also usually known for their high return offering capacities. There are several penny stocks or shares below 1 rupee listed on the Indian stock exchange. Such companies are generally startups or the ones that have very low market capitalization. Investors usually buy these stocks on the expectation of the company growing big in the future, which will be reflected by an equivalent increase in its share price. There are several penny stocks or shares below 1 rupee listed on the Indian stock exchange. Let us know the top reasons why you should have these stocks in your portfolio.
Penny stocks can help you earn higher returns from very low principal investment
Top Reasons to Include Share Below 1 Rupee in Your Portfolio
Here are the main reasons why you should consider buying penny stocks:
Low Capital Requirement for Investment
You do not need to have huge capital to buy shares below 1 rupee. Even with a capital of merely Rs 1000, you can buy more than 1000 units of a penny stock. This allows you to play on the high return offering potential of penny stocks without risking much capital. You do not need to invest your entire capital just to buy penny stocks. For example, if you have a capital of Rs 10 lakhs, you can invest only 0.5% of the same, i.e; Rs 5,000 to buy 500 units of 10 different shares below 1 rupee.
High Return Offering Potential
The key feature and also the sole reason behind why you should include penny stocks in your portfolio is that they can offer substantially higher returns. The Indian stock market is filled with stocks that have started with a price below 1 rupee but now are trading 100 times over the same. Even if you have invested Rs 5,000 to buy 1000 units of a penny stock, and the stock price increases to Rs 10 in future, your investment will turn out to be Rs 50,000, which is again over Rs 45,000. Penny stocks are shares of companies that are usually startups. These stocks have the potential to turn multi-bagger in a few years. This is the main reason why investors who prefer a very stable equity portfolio also invest some money in shares below 1 rupee.
Opportunity to Diversify With Low Capital
Investing in shares below 1 rupee enables you to include multiple such penny stocks in your portfolio. Let us understand this with an example. Suppose you have Rs 5,000 to invest in penny stocks. Now you can buy 10 different shares of below rupee 1 and diversify your penny stocks portfolio. This increases the chance of any of the stocks turning into a multi-bagger and returning you high capital gain. Let’s say 9 out of 10 penny stocks in which you have invested fails to perform and the price of the last one increases 10 times (usually seen with multi-bagger stocks), you will gain Rs 45,000. Adjusting the loss incurred of Rs 4,500 in 9 other stocks, you will still end up with a capital gain of Rs 40,000, which is a return of around 800%.
Option to Invest in High-Quality Startups
Penny stocks are shares of companies with very low market capitalization. Most of these companies are startups that have the potential to grow exponentially in some years. Although sorting out such high-quality startups from the list of penny stocks can be difficult, doing fundamental analysis and proper research can help you to pick suitable stocks of startups that can turn multi-bagger. Not only for capital gains but stocks of these companies can also be kept for the long term. This will allow you to earn steady returns in the long run and receive dividends as well.
There are several penny stocks in the stock market, choose the right ones to invest in
Investing in shares below 1 rupee can be highly beneficial but while making such investments, you should calculate the possible risks associated with such penny stocks. You can reduce risk and increase chances to earn higher returns from your investments in penny stocks by following these few simple tips:
- Penny stocks do come with very high risks. Therefore, invest only that much capital that you can invest and forget completely. This is necessary because even if all your investments in penny stocks fail, you should have to suffer a huge capital loss.
- If you wish to earn higher returns by investing in shares below 1 rupee, you should avoid guess-picking. Investors who have capitalized from investments in penny stocks are usually the ones who have done proper research before investing. You should analyze the company, its industry, profit and loss statement, revenue growth, and several other things before considering buying its stock. Only with proper research and fundamental analysis of the company’s stock can you sort and pick high-quality penny stocks that have more chances of turning into multi-bagger than others.
- Do not invest the entire capital that you have reserved for penny stocks in a single company. It is recommended to invest at least in 5-10 such penny stocks. This will increase the chances of making a profit from such investments.
Shares below 1 rupee or penny stocks are one such opportunity for investment in the share market that brings a very high return earning option with significantly low capital investment. You can include such penny stocks in your portfolio apart from your general investments. Make sure that you have calculated the associated risks and done proper research before investing.