How to protect yourself from financial frauds

Financial scams and investment frauds have become common occurrences in and around us. A potential investor sitting on money and scanning different investment options in the market is usually a prime target. What if you were careless and trust your money with someone who may be scheming to siphon off your hard-earned money without so much as even a hint?

There have been innumerable cases where online scams have led people to part with their funds and suffer some agonising damage because of their own negligence. To avoid this, it is crucial to spot early signs of investment fraud and nip it in the bud well before paying a high price.

Here are some typical investment frauds that can occur right under your nose if you are not careful enough and some ways to beat the scammers before they get to your money!

Internet frauds
 

Most people consume content on the internet every day and become complacent about the data that meets their eyes regularly. For example, checking emails is one commonplace activity that you do every day. However, online scams in your inbox may be waiting to happen and might miss your eyes. Many scammers take advantage of this and send fraudulent emails, which require downloading rigged attachments or any investment advice we may fall prey to.

They may even act as impostors and send emails alleging to be a person of higher authority, asking you to invest money into different schemes, transfer money into different deposits or accounts, or simply asking you to invest in a high-return low-risk scheme which may end up being nothing but a bogus financial instrument. These may appeal to a novice investor who becomes the victim and loses money.

To avoid falling into such a situation, it is best to ignore unsolicited emails that ask you to deposit money with them in any form. Always reach out to your bank manager or relationship manager to verify the authenticity of the emails and understand the investment opportunities in detail. It is up to you to avoid investment fraud and invest only through a reliable source.

Investment chain
 

Often our friends and family end up being the source of such investment frauds making their way into our lives. They may come across an influencer or an investment agent who nudges them into making investments into schemes that sound too good to be true, who may reach out to you next to put your money into such a promising scheme. Such investment frauds are more common amongst a group of close-knit people, such as socio-religious communities, kitty groups and so on, where one member induces the other to join in, leading to an investment chain of majority members putting their money into one bogus scheme.

Similarly, once an elderly or influential family member is convinced of one such scheme, the rest of the family members follow suit based on their blind faith. However, as soon as the curtain is raised on the whole scam, it leaves them feeling betrayed, cheated and financially ripped off.

The only way to avoid such investment advisor fraud is to ensure that you conduct a thorough research about the company before making any investment. Understanding the terms and conditions and the returns expected from the scheme will help you make an informed decision.

Pump and dump schemes
 

A pump and dump scheme is a type of securities investment fraud that can break an investor’s portfolio. Perpetrators of the pump and dump scheme buy substantial stock in a low-priced company before spreading false and misleading statements about the same in the market. They create a buzz around the said stock to artificially inflate its share price by circulating positive news through various channels such as WhatsApp groups and YouTube videos.

This influences many investors into flocking to purchase the said company’s stock, raising its share price in the market. As soon as the share price rises over a certain threshold required by them, the perpetrators exit the stock by selling their shares to book huge volumes of profit. This again results in the stock price tanking and falling drastically, which leads to enormous losses for later investors.

The Securities and Exchange Board of India has repeatedly asked to spot warning signs against pump and dump schemes, especially for vulnerable investors who trust unregistered brokers to manage their money. Investors should always steer clear of herd mentality and thus rely on their own research and judgement before making any investment.

Sales scam
 

Have you ever received cold calls from alleged spokespersons of various insurance houses or mutual fund houses to buy their products? If yes, it is advisable to tread carefully. Many of these cold-callers enroll high-pressure sales tactics or even intimidation to force people to give in and purchase investment schemes from them. They create a scenario of emergency and rush you into a decision without helping you with the complete knowledge of the risks that come with the investment.

Many people fall prey to such inappropriate investment advice. For example, elderly retired people searching for products that can generate fixed income for them may find themselves misguided into making unwanted investments into products that not only expose them to a greater risk but also park their life savings into low-income investments.

This kind of investment scam can also lead to a massive loss of your hard-earned savings. Research the products that fit your financial goals and then invest in them once fully convinced of their authenticity.

In conclusion
 

Investment scams and frauds can come in varied forms and types. You are most likely to encounter one on your journey of investment-linked activities. The best way to keep them at a safe distance is to approach any investment scheme with a healthy dose of skepticism. This will give you first-hand information about what all the particular investment will not do for you before telling you exactly what it brings to the table! Remember, fraud protection is your prime responsibility as an investor.

IDFC FIRST Bank endeavours to keep its customers well informed to minimize frauds and scams on their investments. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.