Avoiding Investment Fraud: How to Verify Legitimate Opportunities and Protect Your Money

Investments in the stock market are subject to market risk; before making any decisions, thoroughly read the offer document. The mutual fund industry's crucial disclaimer has a deeper significance. The increase in retail involvement in the Indian stock market following COVID-19 has created more opportunities for fraudulent activity. The most recent instance involving Dipankar Barman serves as a reminder to investors of the standards and policies set forth by regulatory organisations.

There are two main ways to invest in the stock market: passively and actively. Passive investment options include using a PMS (Portfolio Management Services), investing in mutual funds through SIP or lump sum, or using a wealth management solution offered by banks or other wealth management companies with the necessary certifications. Numerous new retail investors have been seen to begin investing through PMS services, some of which are phoney and others of which are legitimate. A quick glance at one's social media profiles could reveal that many of them identify as portfolio managers and provide PMS services. It is noteworthy that PMS is required to possess an official licence from the Securities and Exchange Board of India (SEBI). The guidelines stipulate that the minimum investment amount is 50 lakh for PMS, whereas the mutual fund requires only 100 rupees. These details are crucial to know while gathering investment corpus from clients.

The disclosure is the second and most crucial component. A mutual fund that invests essentially public funds is required to disclose its Net Asset Value, or NAV. A mutual fund's net asset value (NAV) is determined by deducting its expenses and liabilities from its total asset value. The remaining amount is then divided by the total number of outstanding units. It is often completed at the end of the day because the computation is dependent on the closing price of every asset the fund manages.

On the other hand, opening a Demat and trading account is a must for actively participating in the stock market. Discount brokers and full-service broking organisations that are legally permitted to operate in the nation can help with this. Investors obtain a unique client code after their accounts are set up, which allows them to buy and sell stocks using applications connected to their individual broking firms.

Knowledge of Investment

Investors must possess a thorough understanding of stock market investments. Basic knowledge is essential, such as monitoring market trends, evaluating company fundamentals, and understanding company valuations along with technical analysis for short term and long term trends of market. A SEBI-registered research analysts and investment advisors can offer professional advice, it comes at a cost.

Investment Practices in Assam

Concerns have been raised by the numerous people in Assam who are spotted collecting money under false pretences as portfolio managers and by those who are gathering money in their own Demat accounts while offering guaranteed or certain returns on their investments. Pyramid schemes, which are fraudulent investment models that promise large returns for small investments, are similar to these scams. People at the top of the pyramid get the most money under these systems, while those at the bottom make little to nothing.

For instance, a person (let's call them A) might collect an amount from another individual (B) and promise a certain return from stock market investments. Initially, A may provide returns using the money collected from B. However, as more people join the scheme, it becomes a trap, relying on the recruitment of additional participants to sustain the returns.

By doing this, a few Reserve Bank of India regulations were broken by collecting money in one's own name without a proper licence. And it has been a general practice in India, that Co-operative society, NBFC, Banks, Companies raise fund from public taking prior approval from the required authority. To safeguard public deposits from Ponzi and Chit fund schemes, the government of India enacted Banning of Unregulated Deposit Schemes Act (BUDS Act) of 2019.

The next part is the guaranteed return from Stock Market which is deemed illegal and highly unethical. No one can orally or in writing guarantee a return as long as market risk exists. No person or financial institution promises an assured return in the stock market, according to SEBI. Furthermore, it is against RBI and anti-money laundering regulations for anyone to accept monies from another person into their bank account.

Case Study: Bishal Phukan

Recently, reports have emerged about Bishal Phukan in Upper Assam, who allegedly collected money from people promising guaranteed returns from stock market investments. Phukan, whether knowingly or unknowingly, is acknowledging all the violations in his Facebook post by stating:

“I am a graduate as well as an Industrialist. I am 22 years old. I by investing my own money used to buy stocks from the stock market by complying with mandatory availing Demat account since 2020. Having understood the market and by way of trading in the market I gained lawful money from the stock market. I pay all my taxes as per Income Tax law on my gains. I took money from various persons with a commitment to pay more than bank interest for a period of 60 working days by entering into valid agreement as per Indian Contract Act, 1872. I using my Demat account invested in the stocks for a period of 60 working days and till date as per the agreement, I have returned all the money to the persons with whom I have entered into. Under the Indian law, taking money by way of a valid banking transaction and on the basis of valid agreement under the Indian Contract Act is no offence. Investing the money in buying stocks using my Demat account is no offence under the law. The news that has been telecasted wherein my name, my father's name, my mother's name have been used amounts to per se defamatory for which I have already taken legal opinion and proceeding for the damage caused to my reputation and to my parent's reputation. Furthermore, I assure each and every persons from whom by way of an agreement I received money in my bank accounts that their money is safe and would be returned if at all they want it back within discussed period as per the agreement as the redeeming clause is also been part of the agreement. Furthermore, it is for information that there is not even a single person who has entrusted his money on the basis of an agreement to me have been cheated by me and all the persons have got good returns from the stock market which is far more than what they would have received through banking interest.”

While Phukan asserts that he has followed legal procedures and returned the invested money with returns, it is essential for investors to thoroughly verify how their money is being handled. This includes understanding the investment process, ensuring compliance with legal and tax requirements, and confirming that all agreements are legitimate.

If any issues arise, such as non-compliance with legal standards or fraudulent practices, authorities, including the police, can intervene. The matter of public investment should be handled with transparency and adherence to legal norms to protect investors and uphold market integrity.

Also Read: Special Report: Unmasking Online Investment Scams in Upper Assam