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A circuitous route for embezzlement

Posted by Shreyans Jain Saturday, 27 April 2013 0 comments
The collapse of the Saradha Group, a West Bengal based chit fund company and a swirling political controversy that it has triggered reinforces the fact that chit fund frauds are a part and parcel of the problems faced by those who invest in dubious ventures and bogus schemes, hoping to get high returns. Despite several advertisements by the government warning the public and articles written in financial newspapers and magazines of chit funds being cheat funds, people get trapped in Ponzi schemes designed and operated by unscrupulous promoters who promise extraordinary returns in a short period of time. The underlying principle of operation of most of these firms is that high returns are associated with high risks. As long as there are increasing number of investors who bring with them a steady stream of fresh deposits, the promoters overwhelm their investors with increasing returns. This induces gullible citizens to invest more in such fraudulent schemes and consequently a legion of chit fund companies start mushrooming in different parts of the country, violating the guidelines of the RBI (Reserve bank of India) and SEBI (Securities and Exchange Board of India). Most of these schemes exploit the financial illiteracy of the investors to garner huge wealth and in many instances operate in connivance with politicians and officials of regulatory agencies.

Such is the zeal shown by the investors that they do not feel deterred to even mortgage their materialistic possessions to invest all their hard-earned savings in these ‘attractive and promising’ schemes to earn quick money. It seems the fact that there is no thing called a free lunch is yet to be realised by a large section of our society! Even when we have a variety of investment options with the Post Offices and government banks, investors feel lured to take this circuitous path to ‘prosperity’, only to wake up to a dreadful nightmare - losing both their money and soul.

Thanks to the shoddy investigation carried out in the aftermath of revelation of the hostile designs of such Ponzi schemes, the economic offenders and their accomplices are seldom probed or prosecuted and their illegal funds confiscated. The failure of the government to take timely action against them further exacerbates the recovery of funds from such illegal agencies.

The need of the hour is to crack the whip on all such dubious activities that exploit the dark areas of law where the role of financial regulators has not been explicitly spelled out and thus breed a parallel economy. The investors ought to be vigilant while accepting the terms and conditions of such schemes. The media need to play a proactive role in making the public financially literate. Investors should avoid investing in risky avenues and instead, prefer investment opportunities with the banks.


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