Penny stocks can offer investors an extremely rewards but come along with high risks.
These stocks are priced between Rs 50-100. They offer a great potential to make some spectacular gains. That is why they are so popular, especially among retail investors.
However, they can also prove to be extremely risky.
A lack of history and information about companies, as well as low liquidity, can cause you to lose your money on what may seem like a bargain.
Before investing in a penny stock, check whether the company has a strong balance sheet. A healthy financial profile indicates good growth prospects.
Next, check for future growth opportunities. Favourable government policies or good order book status are some indicators you can look at.
Finally, check for feasibility of business. The more viable the business, the longer it will last.
After completing this checklist, make a watchlist of the top penny stocks to buy in India. Buy them when they are trading with a decent margin of safety.
You can get started with Equitymaster's Stock Screener on Multibagger Penny Stocks.
Investing in penny stocks is not rocket science. However, it requires you to practice caution while doing so. Picking the right penny stocks will help boost your portfolio returns.
Check out Equitymaster's Ultimate Guide on Penny Stock Investing.
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