Ponzi scheme

Ponzi scheme pays early investors with money from newer ones and promises high, steady returns. It collapses when new members dry up.

Ponzi scheme: A Ponzi scheme is a fraud where returns to earlier investors are paid from the deposits of later investors, not from real business profit. It promises high, fixed and quick returns. When fewer people join, the scheme cannot pay and collapses.

In India it shows up as chit-style schemes, crypto "staking", multi-level marketing with a heavy joining fee, or investment apps promising a fixed monthly return. Early members often receive payments and talk about it with joy, which attracts relatives and friends. The pressure is to bring in others, because the payments depend on fresh money. Such schemes are often dressed up with fancy words, slick apps and photos of luxury cars.

Warning signs include guaranteed returns, urgency, rewards for referrals and no clear explanation of how the profit is made. Ask whether the company is registered with the relevant regulator and check on the regulator's own website. Do not invest because someone you trust did; they may be a victim too. Never put in money you cannot lose. A scheme that depends on recruiting new members rather than selling a real product deserves great caution.

Tips

• Treat any guaranteed monthly return as a red flag.
• Check registration on the regulator's official website, typed by you.
• Do not invest because friends or family earned small payouts.

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