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Introduction to Banking

Ponzi Schemes

In the journey towards safeguarding oneself from fraud, it is essential to know about Ponzi Schemes. A Ponzi Scheme is a type of investment scheme where people are lured to invest their money in certain avenues with a promise to get a return at a later date. In most cases, the rate of return is very high to make a person greedy. Such Ponzi schemes maintain the illusion of running a business for a long time. 


There are innumerable examples of such schemes across the world dating back to as early as the 1860s. The number of Ponzi schemes is surprisingly high even today. In fact, in 2017, 63 companies were identified as Ponzi schemes across the world. Some of the most famous Ponzi schemes in India include Sahara, Saradha, and Rose Valley where many people have lost their life savings. 


How to protect oneself from Ponzi schemes?


It is easy to get lured by promises of high returns, however, it is essential to be aware. One mistake can lead to the loss of a lifetime. 


Here are a few things customers can do to protect themselves from Ponzi schemes:

  • Choose wisely: An investment manager is as valuable as a lawyer or an accountant and hence has to be chosen wisely. The same goes for investment avenues. It is always advised to invest money in reputed companies that are monitored by regulatory agencies such as the RBI and SEBI. 
  • Use common sense: A high return can look lucrative, but is it feasible? When most banks are giving a return of around 8%, is it possible for an organization to pay a return of 15%? Using a little bit of common sense can go a long way. 
  • Ask for proofs: It is easy to claim but difficult to produce reports. Customers need to check past performance and see proof of the promised returns. Such proofs should always be printed in letterheads. 
  • Ask questions: It is their own money and hence, customers have a right to know. They should always ask questions and know where their money is being invested. 

Keeping the hard-earned money secured is not a difficult task. By being vigilant and by using common sense, it is possible to not fall prey to any fraudulent schemes. 

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