Collective Investment Schemes offered by unknown companies have been doing the rounds with investors offering unreal returns. Should you consider them?
Paintings, potatoes, teak, emu birds, numismatic coins, copra, housing plots Can you spot a common thread that connects all the above obviously disparate objects? Well if you are successful, you can pat yourself for being fully aware of the goings-on related to them.
But if you still have not spotted the thread, dont worry. You can still pat yourself on your back for reading this article. Well, the above are the themes or subjects that dishonest people have used to lure people into investment schemes or ideas with tall claims of investment returns. And each of the above themes has resulted in investors not getting even their return OF investment; leave alone the promised return ON investment. People have lost millions of their hard earned money to such unscrupulous operators of Collective Investment Schemes (CIS) and the story hasnt yet ended.
CIS is basically nothing but a group of persons pooling their money to exploit some seemingly attractive investment opportunity. It typically involves an individual or company operator floating a very attractive sounding proposition that lures hordes of people to invest.
The operator often pays promised returns to the early investors out of their own capital. This helps in spreading the good word about the scheme and draws more innocent investors to the scheme. The later investors are paid with the money of the early investors. But there comes a stage when the operator has collected enough or cannot pay any more and just vanishes, leaving the investors high and dry.
Ignorance, carelessness and the greed for high returns are the common reasons for the never-ending flow of such schemes. Unfortunately public memory is very short and such fraudulent CIS schemes almost always get good patronage.
Not all CIS are bad. But all those that dangle the lure of high and guaranteed returns are almost always bad. It is best that you avoid these traps that would suck your blood and sweat. But how do you spot such schemes? Well here are some pointers:
Is it approved by SEBI? Collective Investment Schemes are regulated by the Securities Exchange Board of India (SEBI).
All schemes that mobilize money from the public are to be approved by SEBI before being floated.
Check if the scheme on hand has been approved by SEBI. If not or in doubt, then stay clear of it as a matter of abundant caution.
Does it guarantee a return? Except fixed income instruments like deposits, bonds, debentures etc. from banks, government and companies, no sensible solicitor of money from public would guarantee a return.
This is more so when the investment is market based like shares, precious metals, agricultural products, commodities etc whose price performance cannot be predicted beforehand.
Does it sound to be too good? If it does, then it most probably is. Any investment has to happen in the prevailing market scenario and conditions.
So the returns cannot be totally out of whack with what competing investments offer.
Such schemes are usually nicely sugar coated and have a strong sales pitch. Understand that higher returns always entail higher risks.