Beware of Scams Promising High Returns

Schemes promising absurdly high returns have lured many unsuspecting investors, with Torres Jewellery being one of the most notorious examples. This Ponzi scheme offered weekly returns ranging from 2% to an astonishing 11%, with festive season schemes promising up to 13% weekly returns! For instance, at just 2%, your money would roughly triple in a year. At 11%, a `1 lakh investment would supposedly grow to `2 crore in a year—an almost unbelievable figure.

While scams like Torres often target uneducated investors, many victims were educated individuals who should have been more cautious. This raises an uncomfortable question: Is the greed of the common investor partly to blame?

Anatomy of a Scam

Scams like Torres follow a predictable pattern. First comes the euphoric phase, where investors believe they are exceptionally smart, convinced that their earnings are well-deserved. Anyone who questions the scheme or expresses skepticism is dismissed as foolish or envious. Even those aware of the risks often jump in, hoping they can exit before the inevitable crash.

Then comes the crash. It's never a slow decline—these schemes collapse suddenly, leaving no time for escape. When the scheme unravels, the blame game begins. In truth, investors who willingly ignored red flags share some responsibility.

Where Should You Invest?

It's crucial to remember the golden rule of investing: "If it sounds too good to be true, it probably is." The allure of high returns often blinds investors to the risks involved. Legitimate financial products are regulated by government bodies such as SEBI (Securities and Exchange Board of India), IRDA (Insurance Regulatory and Development Authority), and RBI (Reserve Bank of India), etc. These agencies ensure investment schemes are transparent and lawful. Therefore, always invest in schemes regulated by government bodies.

Honestly, even if you simply invest in the following asset classes, you’ll do well in life: stocks, equity mutual funds, and gold for the long term; debt mutual funds, bank fixed deposits, and recurring deposits for the short term. Protect your investments with sufficient health insurance, and safeguard your family’s financial goals with a solid term life insurance plan. With this approach, you’re sorted.

Protect Yourself: Consult a Financial Advisor

Investors should be wary of schemes promising unrealistic short-term returns. It is wise to seek professional financial advice and only invest in products approved by regulatory bodies. This is the best way to avoid falling prey to scams like Torres.

Most importantly, have a trusted financial advisor—much like a family doctor—who can guide you. The advisor should be well-qualified and working full-time as an entrepreneur. You can rely on their education, expertise, experience and wisdom to provide honest advice and protect your investments.

Don't let greed cloud your judgment. Stick to regulated, safe investments, and always consult a financial advisor.

(The author is a Chartered Accountant and CFA (USA). Financial Advisor.

Views personal. He could be reached on 9833133605. )