A Ponzi scheme attracts investors by offering guaranteed and unusually high returns, based on short-term and often complex investments. However, the underlying investments don’t exist. Returns are paid to the initial investors from the funds of subsequent investors, rather than from any actual profit earned. The perpetuation of the scheme requires a continued stream of money from new investors.
Tips to avoid a Ponzi scheme:
- Beware of claims of guaranteed investments with above average returns
- Ensure that you receive detailed written information to fully understand and assess the underlying investment details
- Assess the promoter of the investment and do your homework, i.e. background check, whether they are licensed to sell securities - if they claim they are exempt, check with the local regulator
- If you have already invested and you are pressured to reinvest your returns, or there is a disruption of services by the promoter, contact the local regulator
- Consult an unbiased third party—like an unconnected broker or licensed financial advisor—before investing
- Always deal with a SEBI registered or authorised intermediaries, only
- Although many investment transactions are conducted by phone or online, be cautious about investment companies without established premises or offices
- Do not respond to unsolicited e-mails about investments, job offers or any requests for personal information without independently verifying the contents of the e-mail or phone call
- Avoid investments you are uncomfortable with, or don't understand
- Be vary of "get-rich-quick" offers and "hot tips"— you may stand to lose much more than you'll gain.
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