Police always comes in the end

We all know that in the Bollywood movies, the police always comes in the end. Ditto for financial markets, too.

SEBI Act was passed by the Indian Parliament after the debacle of 1992. It was only after the scam was unearthed, that the act was passed, though SEBI (Securities and Exchange Boards of india – the regulator for securities markets in India) was set up in 1988.

Even in the US, after the great market crash of 1929-1933, SEC (Securities Exchange Commission – the securities market regulator) and FDIC (Federal Deposit Insurance Corporation – the corporation that insures bank fixed deposits).

The only difference between a movie and real life is that while in the movies the police comes after the villain has been beaten up by the hero, in reality it is the common investor who gets bashed up before the police arrives.

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Think, does it really work?

In 2014, a news story int he Times of India caught my attention. A very well known movie star lodged a complaint with the Mumbai police. He had been duped. The con artist had promised to double his money in 45 days and then disappeared. The movie star could not believe that such a fraud was possible. The lure of the high “guaranteed” returns blinded him.

Just to put things in perspective, we present some calculations here. Assume that such a scheme is really available. Assume that one has an option of reinvesting the money in the scheme any number of times.

The scheme would double the amount invested every 45 days, or every 1.5 months. Ethos rate, Rs. 1,000 can grow to Rs. 2.56 lacs in one year, Rs. 6.55 crores in 2 years, and more than Rs. 1,677 crores in 3 years.

At the end of fourth year, one would have accumulated a sum of Rs. 4,29,496 crores. Compare this to India’s fiscal deficit for 2013-14: Rs. 4,90,597 crores.

Think, does it really work? Ask questions. When you are presented with a mouth-watering investment opportunity, your responsibility towards your money is even higher.

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