BEWARE OF DUBIOUS SCHEMES

Investors awareness about dubious schemes

Minsitry of corporate affairs through its various investor awareness/education programmes try to educate and aware the common small investors about the  several dubious schemes operating in the market. The promoters of such schemes float companies with attractive names. They start in a particular area and then, on attaining saturation of member enrollments, keep shifting over to new areas. While promoting the schemes, they get film stars, politicians, sportspersons etc. at grand functions to impress the public. They engage persuasive direct marketing agents, print attractive brochures, release eye-catching advertisements and

hoardings and offer gifts to the investors. They also use attractive slogans. They also “honour” their members with titles like Silver Member or Gold Member. Some of such schemes that are designed to entrap the gullible public by luring them with the promise of becoming rich overnight are:

MONEY CIRCULATION SCHEMES (MCS)

MULTI-LEVEL MARKETING SCHEMES (MLM)

NETWORK MARKETING (NWM)

SELF EMPLOYMENT YOJANA (SEY)

By enrollment into such scheme, one gets back some or full initial investment and then keeps gaining

financially by enrolling new members. So also the second set of enrollers keeps multiplying and gain

financially, luring every onlooker. Such a system of chain to work endlessly to provide profit to

everyone concerned ultimately breaks down at some stage, resulting in big financial losses to many.

When a person fails to get his required clients or enrollers, the promoters of the scheme do not tell

about the non-viability of the scheme but blame it as one’s personal failure. Many companies have

now disguised into the activity of marketing goods, services, drugs and health care products.

CHIT FUNDS

Chit fund is a kind of savings scheme under which a person enters into an agreement with a specified

number of persons that every one of them shall subscribe a certain sum of money by way of

periodical installments over a definite period and that each such subscriber shall, in his turn, as

determined by lot or by auction or by tender, be entitled to the prize amount. However, there are many

such schemes which have been misused by their promoters and there are many instances of the

founders running what is basically a Ponzi scheme and absconding with their money.

DEPOSITS

Finance Companies take deposits from the public, promising them unusually high returns. Since high

returns are unsustainable, ongoing repayments of interest and deposit amounts depend on

continuous and uninterrupted flow of fresh deposits. At some stage, when the flow of deposits gets

stifled, the payments to the investors stop, leaving them high-and-dry.

PRIVATE PLACEMENTS

Many companies offer equity shares/convertible debentures/preference shares etc to the public

through the private placement route, often for a “a mega project’ and promise dream returns. By law,

such securities cannot be sold to more tan 49 persons, beyond which the Company is required to

come out with a Public Issue under the guidelines of SEBI.

PLANTATION COMPANIES

Many companies offer schemes that multiply money by investment into plantations. Most of such

companies are not registered with SEBI, and typically have fled with the investors’ monies.

Caution for the general public

Remember that there is no free lunch and that there is some catch when some one offers to make

money for you easily and quickly. So any get rich quick scheme or high returns schemes should be

suspected. Remember also that these schemes are unsecured, are illegal and are not regulated by

the Government. As such, if you lose money, you will not be able to seek any help from the

Government