CAUTION AGAINST PONZI SCHEMES AND UNREGISTERED INVESTMENT ADVISERS
CAUTION AGAINST PONZI SCHEMES AND UNREGISTERED INVESTMENT ADVISERS
- Ponzi Schemes: A Ponzi scheme is a fraudulent investment scheme promising high rates of return to investors, where returns are generated from the money of subsequent investors rather than actual profit.
- Characteristics of Ponzi Schemes:
- High returns with little or no risk
- Overly consistent returns
- Unregistered investments
- Unlicensed sellers
- Non-transparent disclosure
- Difficulty in receiving payments
How to Spot a Ponzi Scheme
- Be highly suspicious of any guaranteed high return investment opportunity
- Be sceptical about an investment that regularly gives positive returns regardless of overall market conditions
- Check if the investment is registered with the regulators or any government agency
- Verify if the investment professionals and firms are licensed or registered
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Protection from Fraud
- Be aware of the risks of unregistered entities offering investment schemes
- Keep your money safe by being cautious of fraudulent agencies luring investors with higher returns
- Examples of fraudulent schemes include the Sharada Chit Fund Scam and the illegal mobilization of funds by Sahara firms
Caution against Unregistered Investment Advisers
- Investment Adviser: A person who, for consideration, provides investment advice to clients or other persons, and is registered under SEBI (Investment Advisers) Regulations, 2013
- Registration: Investment Advisers must obtain registration from SEBI and follow the Code of Conduct
- Malpractices: Unregistered entities may offer assured returns, charge exorbitant fees, mis-sell products, and engage in other malpractices
Dos and Don'ts While Dealing with Investment Advisers
- Do's:
- Always deal with SEBI registered Investment Advisers (IAs)
- Check for SEBI registration number
- Ensure that the Investment Adviser has a valid registration certificate
- Pay only advisory fees to your Investment Adviser
- Make payments of advisory fees through banking channels only
- Don'ts:
- Do not deal with unregistered entities
- Don't fall for stock tips offered under the pretext of investment advice
- Do not give your money for investment to the Investment Adviser
- Don't fall for the promise of assured returns
- Don't let greed overcome rational investment decisions