Difference between Blue Chip and Penny Stocks

What are Blue chip and Penny stocks? What is the difference between these stocks, which are better for the long and short term and what are the dangers involved in investing in Penny stocks? Get the answer to these and more here!

The Indian Stock market is considered home to over seven hundred companies and these stocks are generally grouped into several categories based on different factors from where they belong- that is, their market cap and other aspects. Therefore, if by any chance you are planning to dive inside the world of online trading, it is important that you must have knowledge regarding the stock market- what it is and what happens if you invest here and how one stock is different from the other.

Among all the types of stocks that one can trade online, penny stocks and blue-chip stocks are probably the most talked about options. And these are also the opposite ends of the price spectrum.

So, let's explore blue chip and penny stocks more and find out the difference between them.

What are blue chip Stocks?

Blue chip stocks are well-established stocks of companies in their own respective sectors. These companies are well-known mainly because they have been thriving in the market since the beginning and typically have high market capitalization. As these companies have a history of consistent profitability, they are generally considered safer options to invest in by most investors or experts.

Want to know the names of some popular blue chip stocks in the Indian Stock market? These are Tata Consultancy Services, Reliance Industries, Hindustan Unilever Limited and Infosys.

Now if you further want to know about the characteristics of blue chip stocks, these are large market capitalizations, offering Sound Financials, history of stable long-term growth, popular presence in the market etc.

What are penny stocks?

Penny stocks are the stocks of small companies which are mostly traded in the marketplace. These stocks tend to have low stock prices which led to the name - penny stocks.

In India, the stocks which have a price of around Rs. 25 or even lower are grouped into this category. Therefore, unlike blue chip stocks, penny stocks have lower market capitalization and sometimes lower profitability and lesser potential for long-term growth.

There are several penny stocks available in the market. Some of them are Suzlon Energy and Jaiprakash Power Ventures, South Indian Bank, etc. Some of the key characteristic features of penny stocks are:
  • Weak financials
  • Lower possibility of long-term growth
  • Inconsistent payouts
  • Low market capitalization

However, the question remains how blue chip stocks are different from penny stocks?

Let's find out.

Penny stocks have always been considered as the opposite end of blue chip stocks. This is because both of them are different in so many spectrums. Here are some of them mentioned below.

Long term Returns

When it comes to better return offers, blue chip stocks are drastically different from penny stocks. The reason is that the prices of the average penny stocks are a bit problematic while growing over the years. There are more bad penny stocks than good ones. Nifty realty Share Price conveys the same that penny stocks get affected by pump and dump schemes.

However, the overall result is if you want to go for the long-term investment sector, you should not choose penny stocks. Here, the Blue Chip stocks might be pricier but they have a higher potential to provide better returns over several years.

Dividend payouts

A company sees the most profitable stage when dividends become a part of it. Blue chip stocks generally pay dividends more often than penny stocks. Why? Because blue chip stocks are issued by companies which are consistently more profitable than penny stocks.

On the other hand, Penny stocks tend to pay dividends very rarely. Since the beginning, these stocks do not have a history of profitability which you can enjoy while investing in blue chip stocks. Therefore, in most cases, there are no dividend-paying stocks. Even if you invest in shares which offer the benefit of dividends, it is probably best to consider blue chip stocks as your best partner rather than befriending the penny stocks.

To wrap it up, now that you have a vivid knowledge of blue chip stocks or penny stocks, you can research which is the best to invest in.

But before investing in any of it, remember you need a Demat account and a trading account for online trading. And if you do not have one, you can easily open an account online with the help of a service provider.

Don't fret, since the entire process is easy, quick, and paperless. And most importantly, it is free of cost. So, with a Demat account and one of these stocks, start your online trading now.


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