Understanding Penny Stocks And The Role Of Funds In Investments

2024-10-11 12:06:35

(MENAFN- Kashmir Observer)
Representational Photo

By Irshad Mushtaq

Many investors are drawn to penny stocks, hoping they'll become multibaggers-stocks that increase in value many times over. The idea is appealing: buy a share at a low price, and watch it rise dramatically. However, in regions like Kashmir, history shows that most people end up losing money investing in penny stocks. The reality is that out of a hundred penny stocks, only a few-typically five to seven-achieve multibagger status. How can an average person predict which will succeed?

In practice, it's nearly impossible for a layman to pick the future winners. Though some frontline stocks were once small-cap companies that blossomed into large caps, we hear more about their successes than the numerous failures. Choosing viable stocks from small-cap or micro-cap categories is particularly challenging.

For those without insider knowledge, it's wise to consider investing in small-cap, mid-cap, or micro-cap funds through ETFs or mutual funds. These allow you to diversify your investment, spreading risk across a range of companies. Professional fund managers curate these portfolios with carefully managed risk and broader exposure.

Keep in mind, investing directly in small-cap stocks should only account for 5-10% of your portfolio. Fund managers often construct portfolios with prudent money management strategies to minimize risk. Many small companies lose value over time, leading to potential losses in money, time, and energy.

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In summary, ETFs and mutual funds offer a convenient way to invest in small-cap stocks for those lacking deep market knowledge. By selecting companies with strong fundamentals, and trusting in professional management of funds, investors can mitigate the significant risks associated with direct investment in these volatile stocks.

Learn from the insights of @Irshad Mushtaq, Writer, Investor, Entrepreneur & Founder of M I Securities! Connect for valuable financial advice at [email protected]

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