If it is a tall claim, run the Ponzi filter :: Business Line

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SEBI regulates Collective Investment Schemes (CIS) and SCORES, its online grievance redressal system, can be accessed if you have to settle scores with any of the Ponzi operators.

But often, before justice catches up with these fraudsters, they do the disappearing act, along with your money, leaving you in the lurch. It is, therefore, advisable to do a few checks before you invest in CIS.

One, a certificate of registration from SEBI is essential. In the wake of Saradha, Rose Valley and other scams, SEBI amended its CIS regulations in January this year, to cast the net wider. Now, any entity which manages a corpus of more than ₹100 crore becomes a CIS by default, and has to seek registration by SEBI, whether it collects money towards time-share, livestock rearing or teak plantations. The regulator puts out a Press Release on its website every time a CIS operator registers. Besides, to help have a trail, subscriptions to CIS schemes can now be made only through banking channels and not by cash.

CIS companies are required to dematerialise units proposed to be issued and also comply with specified KYC (Know Your Customer) norms. So, if someone approaches you with a tall promise of returns through fancy schemes, run it through these filters before committing your money.

Nobody’s child

Even as those who have put their money in other instruments have some authority to turn to, chit fund investors alone seem to be left in the lurch.

They are specifically excluded from the purview of the RBI and SEBI. They are governed by legislation enacted by State Governments or by the Chit Funds Act passed by the Centre and fall under the ambit of the Registrar of Chit Funds in each State. The only choice for aggrieved investors, hence, is to approach the Registrar’s office.

Investors can exercise prudence in a few ways before they sign up for a chit fund scheme. To avoid falling prey to fly-by-night operators, check the registration details of the fund.

Registered funds need to maintain a security deposit with the registrar and are also not allowed to invite public deposits or to invest in the stock markets.

Be wary of funds that exempt members who win the prize from paying future instalments. This is not permitted under the Chit Funds Act. A list of registered chit funds as at the end of October 2014 is available on the website of the Ministry of Corporate Affairs - http://www.mca.gov.in/Data Portal/Ministry/DataPortal/Chit_Fund_Companies.pdf