Don't fall into trap of banking, mutual funds, SIP frauds - Check how to identify fraudulent or Ponzi investment schemes

India is no alien to fraudulent or Ponzi schemes. In 2017, a Rs 3700-crore ponzi scam was unearthed in Noida in which as many as 7 lakh people were looted through an online social media portal. Last week, the Thane police booked twelve people for allegedly duping a man of Rs 55.27 lakh by promising good returns on investments in mutual funds and other schemes. The victim was reportedly introduced to a number of financial advisers (agents) between March 2015 and December 2017 on the promise of better returns for the money invested. 

These are only a few cases. There are hundreds of such fraudulent schemes flourishing in the country that put the investors' money at risk in the name of investment in mutual funds, banking schemes or SIPs. However, these schemes can easily be identified and investors make sure that they don't fall in the trap. Here is how to identify fraudulent or Ponzi investment schemes:

1. Overwhelming returns

Most dubious schemes offer unbelievably high returns on investment. Tax Expert Sunil Garg told Zee Business Online that this the biggest way to identify such schemes. "They target small investors and promise high returns of up to 18 to 24 per cent. That should be the first alarm," he said. 

Garg advises that the investors should compare these rates to the interest offered by bank fixed deposits. "The investors need to compare these rates with the bank FD rates," he said, while adding that it would provide a clear picture. 

2. Agents offer more commission

Garg said that the next sign would be higher commission offered by the agents. This is often done to lure the investors. In this case, it is better to cross check before putting the money. "The agents will always offer you more commission. In this case, you should always go and check if it is backed by the government or not," he said. 

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3. Data and performance in public domain

The investors should always check the track record of the company and the product before investing. Amit Kukreja (SEBI registered investment adviser), Founder, AmitKukreja.com told Zee Business Online that it is very simple to identify fraudulent schemes.

"Any scheme that you are buying should have a past performance record. This record should be verified by a regulator. For example, if you are investing in a stock, you can get its performance online or download company's balance sheet. You can also do technical and fundamental analysis of the stock," he said. 

"If you are investing in a mutual fund, you should be able to track its performance in last five to seven years," Kukreja said.

Giving the example of Bitcoin, he said even though the data was not available in the public domain, people invested in it as the price was going up. "The investors only had access to buying and selling price. Nobody had any clue about who is regulating it or how the prices were going up. People just got on to it as the prices were going up, it turned out to be a bust scheme," he added.

4. Regulated

The next thing an investor need to check if the scheme is regulated or not. "Stocks and mutual funds are all in the regulated market controlled by Sebi," Kukreja said. 

He added that if the regulator presence is there, the company data is there and the performance data is there in the public domain, you can invest.