Rahul Dravid, Saina Nehwal, Prakash Padukone, great sports stars who played their sport with so much of precision but that did not translate where their money is concerned. It is hard to accept that such personalities would invest their hard earned money with a local unknown firm promising the moon. It’s like a believing a car salesman assuring a mileage of above 25 KMPH for an SUV when everybody knows it is simply not possible.

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In fact, a couple of years back, in the course of prospecting a client, I came across one such scamster who was fooling customers assuring 20-25% returns by trading in commodities. Wanting to know how this firm was giving such returns, I requested the client to connect me to this person. Firstly, the guy refused to meet, was vague about his investment strategy (to the extent of not wanting to share which commodities he was trading) but was insistent about giving 20-25% returns. This to me was typical ponzi scheme behaviour talk about some complex derivative strategy, promises a high monthly return but provide no information or documents to support the same.

What surprised me more in the sports stars’ case was that investments were made, based on a sports journalist’s reference. Irrespective of who gives a recommendation, wouldn’t an individual want to check the credentials of the firm managing the money? One of the large Ponzi schemes in the recent past was being run by Bernie Madoff who cheated clients to the tune of $65 billion. What worked in his favour was that he was a well-respected player in the financial market who helped launch Nasdaq and hence was able to pull in clients.

Many others have used the tactics used by Madoff influence people by telling them that their money is going to be invested in some exotic product, which will be available only to a select few.

Coming back to the client I was prospecting, his main investments were in real estate and share and commodity trading. When I suggested mutual funds as they are professionally managed and a well-regulated form of investment, he was so suspicious about how funds are managed and gave me the same old story of having invested and not made ‘good’ returns but with trading in shares and commodities, he was making up his lost returns! Really!!

Time and again, people fall for ponzi schemes due to their ignorance, greed and probably the lost out feeling.

So before you decide to invest in a scheme, have the following checks in place :
1) What are the credentials and experience of the persons/institutions managing your money?             

2) Are they registered with a regulator like Securities and Exchange Board of India (Sebi)?

3) Do you understand the strategy they deploy to generate returns? If not, stay away.

4) How do the returns compare to the current fixed deposit rate? It is just not possible in today’s environment for anybody to generate even 10% return every month consistently. And keep in mind that only Fixed deposits, PPF and small saving schemes give guaranteed returns.

5) What are the disclosures that the scheme will make? For e.g. in mutual funds, the portfolios are disclosed regularly and hence one knows where the investments are being done.

6) Finally, take the opinion of a financial advisor. Better to pay small fees rather than have your entire capital at risk in such ponzi schemes.

By, Mrin Agarwal
(The writer is director, Finsafe India and co-founder, Womantra)

Source: DNA Money