Temperatures may or may not soar this summer but politics is sure heating up the atmosphere. Various pre-poll surveys are projecting different tallies for political parties but their direction has remained the same. Lok Sabha election has become the 'hot topic' everywhere. Rising equity markets narrate the story of rising investor's interest. Taking advantage of this, some Ponzi schemes are attracting investors in a big way.

How schemes are structured?
Some operators of Ponzi schemes are assuring investors a huge return, doesn't matter what would be the outcome of elections. Ahead of elections, respective regulator(s) are keeping a close eye on suspicious trades and transactions. Although the quantum of money attracted through these schemes is yet to be ascertained; it might run into thousands of crore. Investors are mainly attracted into schemes which are said to be investing in sectors and stocks which are likely to benefit by certain party forming the government. Investment strategies are claimed to be designed keeping in mind, high-focus areas of the new government. Nature of some schemes may appear to be legal, while that of others is overtly illegal.

There are some collective investment schemes which are offering commissions to investors for roping in new investors. Illegal schemes are feared to be participating in "dabba / Bucket trading" which is a trade mechanism used to manipulate stock prices. Furthermore, investors are being advised to liquidate their existing portfolio of shares and mutual funds and use the 'freed-up' capital for making investments in Ponzi schemes. Some schemes claim to have devised hedging strategies that may shield investors in case election results are different than what was expected.

Actions taken by Indian regulators against ponzi schemes...
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. To prevent companies and other capital market participants from channelising illicit money to political coffers, SEBI has stepped up its surveillance ahead of Lok Sabha elections.

Why should you stay away...
PersonalFN is of the view that, investors should refrain from investing in unregulated investment schemes promising high returns. 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. You should always have realistic return expectations. Those who are planning their retirement should particularly stay away from Ponzi schemes. Following personalised asset allocation crafted after considering your risk appetite would help you generate long term wealth and retire peacefully. PersonalFN believes speculation is bad for your financial health.

Are you taking precautionary measures to not participate in ponzi schemes? Share your views here.

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