Many of you might be frustrated with topsy-turvy of equity markets. Stock markets have moved nowhere since 2007, although they made a new high last year. Returns generated by equities and equity oriented mutual funds might have been lacklustre for many investors. Returns on fixed deposits have barely managed to beat inflation which has been persistently high for last few years. Taking advantage of this, some companies have promoted ponzi schemes promising supernormal returns. Such schemes have proliferated in the recent past.

What are Ponzi Schemes?

In simple words ponzi schemes are fraudulent investment schemes which promise to generate unbelievably high returns such as doubling your money in quick time. Initially these schemes might yield good returns but eventually, investors don't only lose money but are left high and dry since ponzi schemes are not strictly regulated and investors bear the risks associated with investment.

Why people get lured to ponzi schemes?

It is often greed of generating higher returns entices people to invest in ponzi schemes. These schemes, on many occasions, provide high returns till they get popular to become big enough for promoters to run away with monies.

Measures taken by regulators

Indian regulators such as RBI and Securities and Exchange Board of India (SEBI) have been creating awareness against ponzi schemes. Recently SEBI stressed on the need of giving easy access to genuine financial products to fight the spread of ponzi schemes. Moreover, taking a note of widespread of ponzi schemes, SEBI took some actions for curbing theme. It declared that illegal mobilisation of money, i.e. schemes floated without obtaining SEBI's approval, would be considered a "fraudulent and unfair trade practice". Moreover, SEBI decided to impose heavy penalties on ponzi scheme operators which are as high as three times of profits of the scheme or Rs 25 crore whichever is higher. Also, SEBI has planned to intensively probe unauthorised credit cooperative schemes having a size of Rs 100 crore or more.

PersonalFN view:

Although such measures by the regulators may help keep check on the spread of ponzi schemes; they will not deter investors from investing in them. Awareness needs to be created against these schemes. People should be made realise that such schemes may appear to be rewarding but they are launched to commit frauds. PersonalFN is of the view that instead of getting excited about returns generated by such schemes you should be concerned about their fidelity. It is important for you to be a responsible investor. Responsible investors always have realistic return expectations and only limit their investments to genuine and well-regarded products.

PersonalFN believes those who often get swayed away by tall claims of ponzi schemes invest in them because their sole motive is to maximise wealth. Contrary to this, PersonalFN believes one should invest keeping one's goals in mind. Safety of capital can't be totally disregarded. For satisfaction of long term goals such as retirement you should stay invested in for longer duration, ignoring the short term performance of your investments. Having said this, PersonalFN is also of the view that investors must give due consideration to their risk appetite and design asset allocation accordingly as to suit to their requirements. You should always ensure that you invest in investment avenues which are time proven and managed by professionals.

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