Navneet Dubey says it’s important to know how to identify Ponzi schemes, pyramid schemes and other fraudulent investment products to safeguard your hard-earned savings.
By Navneet Dubey*
Photo: Julien Moreau
Is someone offering you a huge return if you invest in their scheme, and that too in a short time?
Be careful you could be trapped in a Ponzi scheme with the potential of losing all your money.
A Ponzi scheme is an investment scheme structured to defraud investors.
If you are a new investor and one who is not clued on to such fraudulent activities, you stand a greater chance to be duped.
Here are some signs that can help you identify a Ponzi scheme:
Exorbitant returns
You must have often heard about schemes which can give you guaranteed returns without involving any risk.
The returns offered are quite high, which may not be reliable at all when compared to other investment avenues.
Moreover, the scheme might impress you with showy figures.
However, one should be aware of fraudulent activity; instead of making money, one can lose what they have saved for themselves over the years.
Schemes not registered with Authorities
The best way to check out the whether the scheme is a fraudulent one is by checking with the regulatory authorities.
If the product is not associated with any of the government-approved regulators, it means there is something fishy which you need to further check before investing in such a scheme.
Returns mostly remain constant
If the scheme is showing steady growth in returns over a period, you should cross-verify because very few schemes in financial markets give steady growth unless they are fixed income schemes.
Providing no valid documentation
Most Ponzi schemes generally do not provide any authentic paperwork when you go to buy or get involved.
The agent might also ask you to fill in an online form.
It is important to be sure about the authenticity of the website, and never enter your personal details on a website about which you have doubts.
Complicated strategies
While going through the process, if you find the strategy quite cumbersome then that is a time to do your homework before taking any financial decisions.
For example, in a “pyramid scheme”, you may be asked to add members below you and form a chain or a tree so as to accrue more and more benefits.
Schemes like these are common and attract those who want to earn quick money.
Unauthorised intermediary
The agent or broker through whom you are transacting should be an authorised one.
Either the entity should be known to you or they should tell you that they hold a valid licence from the regulatory authorities.
Avoid brokers or intermediaries who fail to provide such documents.
Difficulty in receiving payments
If you are already stuck with such a scheme and they are unable to meet the payment deadline, take immediate action.
You may be offered greater future returns if you roll over your investment rather than receiving your money.
Do not fall into such trap — you may end up losing your hard-earned money.
* Navneet Dubey is a financial services professional in India. He tweets at @imNavneetDubey.
This article first appeared at www.moneycontrol.com.
