IVCA represents 45 percent of the overall AIFs in the country.
Recently, a 71-year-old retired financial professional based in Mumbai lost around Rs 2 crore to a stock market scam perpetrated over the WhatsApp messaging service, as per an Indian Express newspaper report dated June 19. The scamsterâa womanâcalled up the senior citizen over WhatsApp promising an investment opportunity in the equity market. A fake mobile phone applicationâresembling that of a popular investment firm, for good measureâwas also made available to him for download, to make it all look genuine. Then came the killer. A WhatsApp group was created with many other people in it. Someone or the other would regularly take turns to boast about the returns they allegedly made from trading in sharesÂbased on the advice that theÂ'tipster'Âgave. This pretence was maintained over a month to win over the victim, who then decided to take the plunge and transferred nearly Rs 2 crore over 24 transactions. A fake account (profit) statement was also shown to the victim saying he had earned Rs 14 crore. The victim suspected something was amiss when he decided to take some money off the table and was instead asked to put in more in the form of withdrawal tax. The case and police investigation are still on.
Separately, Kotak Securitiesâone of Indiaâs largest brokerage housesâ cautioned investors against dealing with unknown people posing as officials of the firm. âUnethical entities and individuals have been conducting fraudulent activities using Indian and international mobile numbers and social media platforms. These individuals/groups falsely claim to be associated with reputed financial institutions like Kotak Securities and showcase fake certificates purportedly issued by regulators, exchanges, or the company,â said Kotak Securities in a media statement it issued on June 20.
Although in this case it wasnât Kotak Securitiesâ app that was being impersonated to lure the victim, its spokesperson told Moneycontrol that numerous complaintsÂhad been received by several brokerage houses, including Kotak Securities, about impersonation used to lure gullible investors.
The reality isÂthat aÂrising stock marketÂhas led to many investors feeling that they are missing out (the FOMO factor). With the S&P BSE Midcap having returned 31 percent (in the last six months) and 61 percent (over the last 1-year period) and the benchmarkÂS&P BSE Sensex having returned 10 percent (last six months) and 22 percent (over the last 1-year period), respectively, many investors have been wondering if theyâre too late to catch the bus. But what if the bus isnât meant to take them to their investment destination?
Here are the common traps that you should avoid when navigating the stocks markets and investment world.
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'We will give you high returns'
Everyone wants to make money from their investments. But we forget to account for the risk we need to take to get there. Take the case of large-cap stocks (represented by the S&P BSE Sensex), mid-cap stocks (represented by the S&P BSE Midcap) and small-cap stocks (represented by the S&P BSE Smallcap index). If you had invested in small-cap stocks in 2022 based on its performance in 2021 (when it gave returns of 63 percent), youâd have been disappointed. In 2022, the S&P BSE Smallcap index lost 2 percent.
That said, it is still okay to invest in legitimate companies whose names and businesses weâve known and are listed on the stock exchanges. But what happens if you donât know where your money gets invested? âAnything that gives the impression of being too good to be true is usually a warning sign, for instance, 'schemes' or 'investment opportunities' with very high returns but carrying very low risk. Promises of high returns with little to no risk are red flags. Genuine investments carry a certain level of risk,â says Manthan Shah, managing partner at Wish Worth Wealth, a large Surat-based mutual fund distribution firm.
Be careful ofÂextravagant promises. Viral Bhatt, founder of Money Mantra, a personal finance solutions firm, shared a WhatsApp message with this writer that he received for an investment offerÂthat promised â800 percent in 2 monthsâ. These are usually âget-rich-quick schemesâ, he says. âPromises of high returns with little risk are usually too good to be true. Do your research on any investment opportunity before committing your money,â he advises.
Avoid phone calls; insist on in-person meetings
In the case of the Mumbai senior citizen, the scamster contacted the victim over the phone. He never seemed to have once met theÂperson who masqueraded as the investment professional. AndÂtransferring a substantial sum without due diligence, Rs 2 croreÂin his case, is a rookie mistake, yet one that many fall prey to, if the scamster sounds convincing over the phone.
âThese are unsolicited tips,â says Shah. âIf you received tips through text message (SMS), email or social media in which someone tried to convince you thatÂa particular stock is good and you should invest in it, then they could be conning you intoÂa pump-and-dump scheme.â
A good financial advisor seldomÂmakes unsolicited calls, unless s/he is known to you. At most s/he comes through a solid reference. Itâs always best to approach a qualified financial advisor personally,Âpreferably one who comes recommended. Alternatively, there are genuine data sources from where you can find a suitable financial advisor.
Before downloading an app, check the number of downloads and reviews
Beware of WhatsApp groups
Be vigilant when it comes to fake testimonials. This is where con artists use WhatsApp groups to mislead you into thinking that they are dab hands when it comes to the equity market. The modus operandi is simple: they create a WhatsApp group with several of their accomplices and make you part of it. Some members may alsoÂbe other gullible investors who would have been tricked into entering the group and be unwitting witnesses.
The victim of the crime cited in the first instance was conned into not only joining a WhatsApp group where investment ideas were shared, but where several other imposters posted messages of fake gains. A lot of misinformation can get spread through WhatsApp, especially when you are not in a position to verify those claims. Thatâs how the senior citizen got taken in.
To make a sound investment and grow wealth, itâs best to listen to your financial advisor, instead of noise. Hereâs also why physical contact with your financial advisor helps: When you meet your advisor in person, s/he gives you a written investment proposal that you can then âshare with family or friends and seek a second opinionâ, says Ksh*tija Ravi, director, Gaining Ground Investment Services.
Bhatt says that a lot of people get drawn to WhatsApp groups for the ânext big ideaâ and then fall into a deep trap. Often, he adds, linksÂare shared which when clicked lead to phishing scams where money gets transferred out of their bank accounts. âNever click on suspicious links or attachments in WhatsApp messages, even if they come from someone you know,â he adds.
'Invest now, now, now'
One way to identify a scam caller is to senseÂthe urgency or aggression. If the caller wants you to takeÂprecipitate actionâinvest money or sign up right awayâthat's a red flag. Shah calls this a âboiler roomâ tactic. âBe wary of aggressive sales tactics where you're pressured to invest immediately. Boiler room operations use high-pressure methods to sell questionable stocks. If the salesperson cannot provide detailed explanations about the investment or provide details that can be verified, then it cannot be trusted,â he warns.
âââIf you canât understand the underlying investment, better to avoid,â says Ravi.
Is the app authentic?
The victim who fell to the fraud mentioned earlier also downloaded a so-called trading app that resembled that from a well-known brokerage house. So it appears that the caller didnât just impersonate a totally unknown entity. Most likely, the caller said she worked at that brokerage house. The question is: how do you detect a fake app?
Bhatt suggests checking the number of downloads. He says that if the app has a small number of downloads, its most probably fake. âBut even if the number is large, it is not a guarantee of authenticity. Some fraudulent apps may have a large number of downloads as well,â he says.
Step two: check reviews and testimonials on the internet. Add words âfake appâ, for added measure. If you do your research well, something's bound to come up to save your day.
However, investors must also take their share of the blame. The victim in the WhatsApp scam mentioned above was a finance professional who had Rs 2 crore to spare; his initial investment. When the value of his investment on the application turned up to Rs 14 crore (falsely showing a fictitious gain just to keep him happy), he didnât appear to blink, as per the Indian Express report. âThe communication regarding the allotment/ purchase of stocks in Demat or similar investments could have been verified if investments were made. Why the investor only relied on the false portal shared with him is something to be coughed at; Rs 2 crore becoming 14 crores in the short span itself is something to be coughed at,â says Ksh*tija Ravi.
Investors must also do basic research and not walk into such glaring traps willingly.