Ways to evade fraudulent investment schemes

What are investors seeking? This is a difficult question to answer, but investors agree that they are entitled to excellent returns, preferably with no risk. Investors do not view themselves as participating in a market. Since they are capital providers, they believe they should be entitled to returns. Investors would have been rational and reasonable if those who demanded and utilized their funds were honest and moral. Numerous forgeries, misappropriations, and ingenious schemes have defrauded investors of their funds. The regulators, who ostensibly have the best interests of investors in mind, need to catch up. Borrowers and capital aspirants have a long history of devising devious schemes to circumvent regulations and defraud investors. Therefore, investors need to be more cautious, distrustful, and demanding. What should investors do while waiting for the system to become fairer and more equitable? How can we bring investors to the marketplace and encourage responsible consumer conduct? Initially, investors should inquire about the nature of their investment. The marketplace has numerous terms, including contribution, share, advance, and installment. In finance, there are only two things: equity and debt. You are either a lender to the corporation or a partial business owner. A jewelry store that asks you to sign up for a monthly contribution plan that enables you to purchase gold at the end of the term is borrowing money from you. The IPO that is the next big thing is soliciting investments in its equity by expanding its business. There may be clever packaging or naming, celebrity endorsements, and colorful brochures. However, everything ultimately boils down to one of the two capital-raising methods. It is a borrowing if there is a promise of interest and principal payments over a specific time. If there is no periodic return, but the value of the investment is expected to increase over time, the investment is considered equity. Both are perilous. Investors should be able to discern the character of the commitment from the marketing hype. Suppose this is too difficult and complicated to comprehend. In that case, it is best to avoid it, regardless of how sophisticated or appealing the terms may appear. Second, those who borrow public funds should not be privately owned and operated. Sahara is believed to have established more than 4,000 limited liability companies. This demonstrates that a small group of people need to be answerable to the general public on these businesses. Yet, they continued to ask for deposits from the general public. Investors gave money because they were assured high returns. However, it was still being determined how the returns would be generated. Sahara continued to refuse to disclose its business activities and the resulting profits. The country's current lax laws permit private operators to solicit public funds. Investors should avoid investing in private companies. When a company goes public, its financial statements are available. Before borrowing money from the public, the company should have attracted risk-taking equity investors outside the promoting group. Third, the balance sheet should include the return that the company's operations produced. Companies have raised capital by promising investors that they will invest in future money-making teak plantations, emu farms, shrimp farms, orchards, and agricultural areas. According to research, purchasing behavior is significantly more influenced by individuals than processes. Numerous businesses use mascots, advertising, endorsements, and brands to establish credibility. Investors should carefully consider where their funds will be invested and how they will generate returns. Investors will only be credulous if they engage in such a fundamental investigation. No amount of regulatory intervention will ensure that investors receive the necessary information unless they refuse to patronize low-quality companies. This is a difficult undertaking for policymakers and regulators due to the large number of investors and their diverse preferences. On a micro level, however, it will make a difference if one marginal investor refuses to be swayed by the hype and instead requests evidence. Fourth, highly incentivized distributors are invariably involved in a fraudulent capital-raising activity. With high commissions, Saradha and Sahara were able to attract many investors. When a straightforward task, such as providing an application form to a customer, is rewarded with high commissions, everyone except his uncle becomes a distributor. This vast army is spread across products, regulators, and regions, and no one regulates it. Investors continue to face the risk of a distributor bringing in a subpar product and promoting it for a hefty commission. Excellent products will be unable to reach investors and distributors if the distribution is stifled. Even as regulators struggle to resolve this issue, investors can investigate the distributor's earnings. This is not difficult if the investor is not too anxious to sign off on a "once-in-a-lifetime opportunity" to make a fortune. Asking the distributor in advance helps. Requesting time is a smart strategy, and delaying investment helps. Working with a single distributor for an extended time, as opposed to multiple distributors, is also advantageous. Regulators attempt to resolve this issue by requesting disclosure. This is only sometimes effective, as hazards can manifest much later, and firms may refuse to comply, as we have seen with some failing publicly traded companies. Regulators may erect barriers to entry for firms raising capital. This is effective for constructing quality. Investors who understand how markets function and can evaluate the offered products are always better off. Rather than demanding what we should receive, we should focus on what we should do. After all, it is our money.