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NISHITH.BCERTIFIED FINANCIAL PLANNERCM

www.shreefinancial.com

How to Keep your Money Safe by Avoiding Money Traps and MLM

Schemes



About This Book

Financial Literacy is very important but it is the most neglected area not just in schools but also in colleges and business schools. These results in people who are mostly intelligent and hardworking are scoring low marks on the financial literacy quotient front. This deficiency leads to poor choices in loans, investments, insurance, tax planning instruments and faulty decisions. Although many people would not like to admit this quite well and are constantly looking out to learn and re-learn.

There is no doubt that Indian people(whether IT professionals, corporate executives, business owners, professionals, film stars and sports personalities)are at top notch but sometimes it is this very quality affairs that make Indians commit many financial mistakes.

Financial literacy is a very important topic for people to explore and learn from their mistakes. Some of the financial mistakes can often prove to be catastrophic and hence, it is a prudent idea to teach these concepts in schools and colleges itself. An hour or two on a bi-weekly basis right from school will go a long way in laying the foundation of a person’s financial success. Once people are immersed in professional or corporate life, they rarely commit time to understand about personal finance. Many a times it happens that they are caught in the notion of knowing everything.

This Book is just a small initiative to create awareness among public about the various Moneytraps and MLM Schemes which they need to avoid in order to safe guard their money. The whole idea of creating this Book has come after attending a session on Money traps and MLM schemes by Suchita Dalal.

In this book, I have tried to cover all the major traps which were presented by Suchita Dalal. This is my first attempt in writing and this could not have happened without the push factor from my friend Mr. Nandish Desai and Mr. Manish Chauhan who were ready to help me when I told that I wanted to create an E-Book .

I would like to thank my family members who have supported me in the best possible way by giving me enough space and time to accomplish my job. Without their support this book wouldnot have created the way it is today.



This book starts with the most common mistakes that people commit while investing their money. There is a lot of emphasis on the various risks that every person and family faces, it tells about the risk management and the choices that one should make while managing such riskseffectively.

This Book is not meant to be academic piece of work, Instead it is something that is example oriented and created with the Intent of creating financial awareness among everyone therebyhelping them to take prudent financial decisions.

Finally this book is not a “Get Rich Quick” Kind of book; there is a lot of Useful Information that every person should be aware of and can act accordingly.

I welcome any feedback (Greater or Otherwise) at [email protected] . It will be a Pleasure to hear from you all.

About ShreeFinancial:

Shree Financial is first generation business set up in the year 2008. It was started under the Proprietorship of Nishith. He is a MBA Graduate from University of Madras with Specialization of Marketing and Finance. He has more than 5 years of Experience in Financial Industry. He is Certified Financial Planner and also LUTCF (IN) Qualified from American College. His Core Competency is into Financial Planning.



How to Keep your Money Safe by Avoiding Money Traps and MLM Schemes

Every day you open your newspaper, you come across various scams like Coalgate scam, 2G Scam, CWG Scam and the latest one chopper deal scam. I am not going to deal with any of thisscam in my book, but I am going to focus on those scams where public money is getting trapped due to their Ignorance or greediness.

Before starting I just want to say that all of us can be taken for a ride. There is nothing to be embarrassed about. This happens due to the illusions created and we all fall for them. One of such illusions can be seen below

The above image was taken when sensex touched its new high of 21000levels in the year 2008. Almost all the Television Anchors were celebrating new mark of the Sensex by hugging and kissing their laptops. Undoubtly the bull rally which started from 2003 to 2008 was the biggestrally. People who did not take part in equity were made to be felt like fools. Every Investor wassimply doubling their money in no time.



What Happened Next?

Today No One is ready to buy any of these illusions; Infact Equity Market has gone up 20 times during its period since Inception. But none of the Investor has made any money out of it.

Why Did This Happen?

This happened because we fail to understand Risk. Infact, most of us have not admired Risk or Understood Risk properly. This happens in spite of Regulator forcing Investor to read the offer documents / Risk factor & disclosures before Investing. All these leads to Financial Crisis .



Some Eye Opening Facts:

Almost 12 Million Investors had to run out of the market as per D .Swarup committee report.

NSE or BSE does not disclose any data pertaining to the number of Investors entering and exiting from the market, they just give the volumes traded in the market. This completely gives wrong notion about the market.

Research shows that Ordinary People are not hard wired to understand Financial Products.

Most of Us Translate our Experience of Buying Consumer Products to the financial World, that is, we expect that if we buy it from good brand it will work – “That is why most of us are easily lured by easy money schemes and big brands” . In financial world,Big Brand Names means nothing. Since the Product is not visible, there is a very high possibility of getting misguided. Infact, the brands which were responsible for the Global financial crisis are those big brands which people trust. To name few Citibank, Lehman Brother etc. So, the biggest myth that the people need to remove from their mind is that, in financial world, there is no big or small brand.

Investors have lost more money by listening and acting on the advice given in the public media. People are easily getting trapped by reading media news and they are unable to judge whether they are reading news or reading the views that are planted by PRO of the Companies.

Money lost by common Investors in Unregulated investments is much more than the figures they have actually lost in the regulated product‘s.

Infact sources say that Money getting parked in Unregulated Investment is increasing at a faster pace. This is the most worrying situation for the investors.

In this book I am going to cover the various aspects that an Investor needs to know about

1. The things that he/she needs to be avoided in financial market?2. What you need to be aware of? 3. What you need to watch out for?



First thing which the Investor needs to do is to Avoid Unregulated Offers/Schemes

Invest Money in schemes that have an Identified Regulators SEBI, IRDA,PFRDA and RBI are the Regulators

Avoid:

Plantation Scheme (Teak, Strawberry, Grapes Scheme and Most recently Diary &Cattle scheme)

ART Funds (Most of them have Failed ) - Ex : Osion’s Art Fund (SEBI orders Osion's Art Fund to wind up - Source Business Standard)

Guaranteed Return offers by Reality Developers Ex : 11% on 100% Upfront Payments for flats

Or Sahara Hybrid Debentures

Important Note:

It does not mean that if it is a regulated product, chances of getting cheated are not there…Not necessarily true, But by having a regulator you at least have an option of complaining



How to Avoid Losses

People are use to chase returns; we all take a lot of efforts in checking the FD rates before Investing. We check the rates for 1 year, 2year… and so on and then we arrive at the conclusion on the tenure to be opted.

But we Fail to understand that one wrong Investment opted; can erode our entire principal. Infact it can bring a big dent in our Investment and will take us back by 10 to 15 Years

Don’t Be Part of This Crowd



Times of India on 25th August Published an article on How “RBI officers fell for City Limo’s Empty Promises” It gives us a clear picture that even educated people can fall in such type of traps. Greed for making quick returns always leads to such type of mistakes. Some of the hard facts about the people who got trapped in such type of scams are

6000 Police Men 200 IT Officials 15 RBI Officials 300 from Mantralaya and some from Defense service lost money

Total: Rs 6500 Crores Collected. Paid High Return of Over 120% until 2009

He had a Powerful Political Connections in the Mumbai film Industry and also financed the movie Chake de India ….Sources reveals that he had very close connections with theSuper stars of the Bollywood.

No Money recovered, More Money being spent on Hope of Recovery by 1700 personswho formed an association

990 Crores was sent out of the country through one Political leader, which means nothing is going to come back. People will spend more money and time for fighting the case and will end up with no recovery



City Limousine is what we call as MLM scheme, Pyramid scheme, and Chain scheme. In slums, it is called double your money scheme. All are one and the same. Any scheme that asks you to introduce two or more persons with an idea to get high returns is called Ponzi scheme.

IF IT’S TOO GOOD TO BE TRUE ….It usually is

The Biggest Source of Loss for People is the Unregulated Ponzi/MLM/Pyramid Schemes. Any Scheme that asks you to Introduce 2 New Investors or More to get the Extra returns

is the Ponzi Scheme Usually Offers 100% in Binary Schemes Can also be 1:1 or 9:6:3 or 6:4:2 DANGER: Initially those who Earned High Returns are again re-invested when the

scheme fails and investors lose their money….

CERTIFIED FINANCIAL

Federal Bureau of Investigation says that, structure.

Infact, Pyramid schemes are illegal in many countries like Singapore, Australia, Canada, Japan, China, Malaysia, Netherland, Denmark, UK &USA (Source: FBI Website)

Lot of MLM schemes are now Internaare brought here and are sold. InfactSpeak Asia, QNET etc (All are Binary schemes)

Many Countries straight away ban these Binary schemes, bubecause they are not regulated. The amounts m

Astounding Numbers

Pearls - 20,000 Crores Japan Life - 5000 Crores Gold Quest – 5000 Crores, 5 lacs People were

QI/QNET/QUEST NET) Agri Gold – 3000 Crores Speak Asia – 1300 Crores collected in 1 year and 12 lacs people were trapped EMU Bird Scam – 500 Crores collected so far, it is

It deals with buying and selling of Source: Andhra Police



Federal Bureau of Investigation says that, mathematically such schemes are unsustainable

Pyramid schemes are illegal in many countries like Singapore, Australia, Canada, Japan, China, Malaysia, Netherland, Denmark, UK &USA (Source: FBI Website)

ow International, they are registered in Malaysia, Singapore and they . Infact, they don’t even have proper set up in India (Example:

Speak Asia, QNET etc (All are Binary schemes)

t away ban these Binary schemes, but in India they flourish, they thrive use they are not regulated. The amounts mobilized by them are mind boggling

5000 Crores, 5 lacs People were trapped. (They are now back as

1300 Crores collected in 1 year and 12 lacs people were trapped500 Crores collected so far, it is the biggest scam spreading in Chennai.

d selling of Birds. They claim that “Birds are the best Investment

mathematically such schemes are unsustainable

Pyramid schemes are illegal in many countries like Singapore, Australia, Canada, Japan,

alaysia, Singapore and they have proper set up in India (Example:

t in India they flourish, they thrive obilized by them are mind boggling.

(They are now back as

1300 Crores collected in 1 year and 12 lacs people were trappedbiggest scam spreading in Chennai.

“Birds are the best Investment”



I have personally come across many such instances. Some of the common tricks they follow are

Show their Income Cheque and force you to join with them. Giving a false Commitment by promising/Guaranteeing Higher returns than any

regulated financial instrument. sometime they even force you to break Existing Investments and invest that money in their schemes

Start referring Influential people and market their products, generally in Slums, they tap business by first convincing Local Constable Wife and start using her name as Influencerand promote business. But in cities, they tap Lawyers, CAs and make them as Influencers to promote their business. Speak Asia had senior Manager from Hindustan Petroleum and Unilever to act as an Influencer.

Fake Connections

Gold Quest: Got Credibility by saying Nalini Chidambaram was their Legal Advisor& Forbes Magazine supports them.

N Mart Retail: Used to Claim that its Promoter Gopal Singh Shekhawat was the Nephew of the President Mrs. Pratiba Patil. (A Formal Denial was issued)

Royal Life of Kerala: They used the Photo of CM Oomen Chandy … Now they are not using it anymore.

Saradha Group Chit Fund: Half a Dozen Politicians were involved in this scam.

This Happens Due To

Indian Law is Unclear and Inadequately Implemented. Price Chits and Money Circulation schemes Banning Act 1978 provides inadequate

protection. (Under this act all the business like Amway, Tupper ware are also Illegal)



STOCK GURU

Stock Guru (Name taken from US Company): Promised 120% P.A Returns and collected 1100Crores

Lokeshwar Dev Jain & Priyanka Sarawath Jain Ulhas Khaire & Raksha URS

Couple had Multiple Names with Multiple bank accounts with various ids and address proofs. Infact, the report says that they were having 94 bank accounts with 20 banks and owned 12 properties too.



Email Based ScamsNIGERIAN SCAM

Most of us would have received such type of Mails. Everyone at first sight would have believed that you are receiving this mail from Nigeria, but it has been sent from Mumbai. (Suburbswhere all Nigerians are put up, it is called Nigerian wade)

The only way to come out of it is, to delete the mail without breaking your head.



Job Scam

In general, if a job offer says that you can earn a lot of money in a hurry with no experience or skills, the chances of this are least. The same holds true if there are fees for information, kits, or anything else. All of these are warning signs to watch when you are looking out for a job through E mails. Such type of companies target Youngsters. They give an assurance to the people that they will get Good Job with Good Package if they Pay Rs 10000 to them. Sometimes they even promise to reimburse Airfare charges, Boarding and Lodging Expenses too.

I would like to share some of the tips that will help you to identify fake job offers and avoid job scams. Internet fraud is rampant and scammers prey on job seeker’s hopes and desperations. Your best defense is to do your research before applying. Also no big Company does their recruitment by mails; they only do it via Campus or Referrals.

Tips for Identifying Fake Jobs:

You didn’t contact them, they contacted you: This should be an Alarming signal The pay is great: Bogus You get the job right away Vague Job Requirements and Job Description: Unprofessional Emails: It has errors like punctuations & grammatical mistakes. Online interviews via Yahoo Instant Messenger: No Company practices it. Emails don’t include contact info or are sent from a personal email account. Search results don’t add up. You’re asked to provide confidential information. They want you to pay for something



Phishing & Vishing

Emails sent from your bank, seeks verification of PIN, Password, Birth date and account detailsare called as Phishing Mails. It will generally carry subject like

Your A/c will be frozen if you do not Click here (Or)

Your A/C has been locked due to too many login attempts, to resolve it Click here

Banks never send any such communication to their clients. If you see any mails which are forcing you to click, be alert and careful to trigger that it is a phishing mail.



Vishing

Scammers have added a new twist to the “phishing” scam. They’re now using the telephone to capture your account numbers and PIN codes. Fraud fighters call it “voice phishing” or “Vishing” for short.

Both the scams start the same way, with a bogus e-mail made to look like it has been sent from your bank, financial institution or a trusted e-commerce site. It says there is a problem, and your account has been deactivated or frozen and you need to contact them right away to get it activated again.

A phisher tells you to click a hyperlink contained in the e-mail – which takes you to a bogus Web site that will harvest your account information. In the new scam, the visher will e-mail you to call a phone number set up to accomplish his task.

In most cases, an automated response system answers the call and tells you to punch in the data the visher wants.

“It is very clever and a bit alarming,” .The fraudsters hope to fool people who know not to click a link in an unsolicited email that asks for personal information. Making a call might seem like the safe thing to do if you don’t realize that number goes to a crook. So please be aware of such type of scam and please do not share any of your personal details to any one over the phone



Other Types of ScamsLost my wallet scam:

Mail will be sent to all your contacts that you have lost your wallet and request them to transfer some money. The solution for this is to contact the person and inform him to change his password immediately

Phone Scam:

Message Circulated as a part of awareness drive by Vodafone:

“Please do not respond to missed call from unknown International numbers with prefix other than +91 . Also start avoiding Calls /sms about winning Prizes/Lottery as these may be fraudulent calls or sms ….

Airline Reservation Scam

Mails are being sent to the frequent fliers asking them to enter their name and other details. Once they enter it, the system gets affected by virus or it gets hacked. So please be very carefulwhen you come across any such mail.



Common Mail Scams

Please note that the RBI does not send any emails to the public, so if you come across any such mails, just ignore it without giving a second thought. RBI is not interested in any of your personal details.

Till now I had covered scams which had occurred due to Greed, Ignorance or Negligence of the people. But there are instances, were people get trapped due to Blind Belief or Faith. Examples of such traps are explained below



Banks

A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice .Due to their influential status within the financial system and upon national economies; banks are highly regulated in most countries.

Government banks are safe because they are owned by the government , large banks, private banks and foreign are usually “Too Big to Fail”

Cooperative banks are often dangerous: Are under Dual regulation (RBI & Registrar of Cooperative)

Things to keep in Mind:

Remember that your money with banks is insured upto Rs1 lakh only. People should avoid small cooperative banks, because they are not regulated

properly.

But Should You Trust Your Banker?

Please note that the brand names are meaningless in the financial sector. Before deciding on your Investments, you need to understand Your Relationship

Manager. RM’s are generally driven by Performance target and not your Investment needs They generally offer Plans which pay them High commission (Like Structured

Products, Art Funds etc)

Certain Well known scams which were shown in the media where the banks have looted their Customers are …



Suchitra Krishnamurthy case

Suchitra Krishnamurthy, the famous actor and singer was taken for a ride by so called Relationship Manager of HSBC Bank. They promised an assured return of 24% from Mutual fund as well as insurance

The money was supposed to be the means of livelihood for herself and for her daughter. The bank used confidential information about the hefty deposit in her savings account and began to market its toxic services to her. Since bankers are seen as trustworthy, she believed that her relationship manager was advising her correctly.

The modus operandi for HSBC in this case has been a combination of toxic churning of the portfolio management system (2% entry load on every purchase made by it on behalf of client), insurance products promising 24% returns, insisting her on taking a loan instead of withdrawing funds without even disclosing that the client was entitled for a smart loan.

The end result after five years was Rs83 lakh—direct loss from investment, Rs29 lakh in commission to HSBC, Rs8 lakh (50% of investment) lost from an insurance policy, Rs10 lakh (again, 50% of investment) valuation decline in insurance policy still in force, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the Income Tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the bank.



Infact she was not able to surrender her insurance policies too, HSBC clearly refused to act for her by contending that they no longer had any tie-up with Tata AIG and that it was not their business to get client’s money back that they had recommended in the first place.

Each time she complained about losses in her account, the standard reply was that the relationship manager has been fired and that the bank will make up for the losses with judicious investments. Just think, if well known celebrity could be cheated with such impunity, it can very well happen with others

Her statement which appeared in the media:

It is my moral responsibility and a warning to other vulnerable targets—small investors like me should not get conned by aggressive MBA's in suits who are preying on their customers like sharks in the big bad ocean. All the while getting richer and richer while making us small gold fish go bust…. Source: Money life Article



IndusInd Bank Case79 years Old Mangelal Sharma Was Cheated By The Bank

T-shirt carries his photograph and saying “BEWARE Indus Ind Bank is a cheat. It has cheated me and may cheat you”.

ML Sharma, like the majority of senior citizens in India, had his money in fixed deposits. The risks are low and the interest income provides him with the income security someone at his age and in his circumstance requires. He is 79. His wife, at over 70 years, has recently undergone second knee replacement surgery. IndusInd Bank thought it fit to sell him a mutual fund product with a lock-in period of five years by persuading him to withdraw his fixed deposit of no less than Rs7 lakh and invest it in what they told him would simply be another low-risk banking product. This is no doubt a shocking example of how far banks will go to earn commissions.



Knowing that he would object to breaking his fixed deposit, as he would have to pay a penalty on premature withdrawal, they offered to waive the premature withdrawal fees. They then proceeded to tell him about a cooked up product name—Development of Wealth Scheme or DWS, which they said was also offered by IndusInd Bank. They actually sold him DWS Hybrid Fixed Term Fund Series 10 Growth option

Mr. Sharma approached the Banking Ombudsman for justice, but his case was rejected outright because Mr. Sharma had signed the investment form. Apparently nothing else matter.

Today he regrets trusting the IndusInd bank employees. Mr. Sharma says, “I had signed the cheque in the name of DWS and the rest was written by the bank personnel. Had I written full name of the mutual fund, I would have known. I am ready to bear the fees of a handwriting expert for examination. I am even ready to pay a penalty of Rs1 lakh if it is proved that the full name of the scheme on the cheque is in my handwriting.”

There are a lot of Instances where people were trapped by the RM’s of the bank. As a Customer, you can escape from it by following these simple points.

Ask a Lot of Questions about the Product. Don’t sign it blindly, “Loyalty is out of Fashion”. Understand the plan and do

your own research before Investing. Demand References and written Commitments (Even Mail confirmation is

fine) Put things in writing so that you have a proof at the time of registering

complaint. Do save all the mails including the trial mails. Ask for Contact details of seniors at least 2 levels above the Relationship

Manager.



Credit CardDo You Need A Credit Card?

It is highly beneficial if you use it properly. No one in this world will offer you a free credit for 45 days. It is more useful especially at the time of Emergencies

Infact, it is much useful at the time of travel. Think of a situation, where you have missed your flight or your connecting flight has got delayed or cancelled and you don’t have money to book another flight, then at that time your Credit card will be very helpful. Credit card is a matter of convenience for some people, but for others it can be called as a FINANCIAL BOMB

Key Points to be kept in mind while using credit card

Interest & Charges on Credit card are in the range of 40% to 65%. If you roll over Credit – No free period is available till Next Payment: If you come

across such type of situation, my sincere request would be “Not to touch the card till you pay back fully.”

Cash Withdrawal through credit card is an Instant Loan – Cash has to be repaid separately.

On Part Payment – The cash is adjusted last. Offers to Existing Credit Card Holder is a big marketing trick: Generally banks

call and upgrade their clients card from silver to gold, gold to platinum, platinum to titanium and so on. But the idea behind this strategy is to make money. Banks get fat commission through Visa and MasterCard for such type of sales.



Insurance

This is one area, where most of the people get trapped. Associates try to promote the plans which fetches them higher commission and Investors blindly trust and accept the plans without doing ground work. Inspite of all the awareness created by companies like Max Bupa Life Insurance, common Investor fails in understanding the same.

The Very simple solution for the Investors is to opt for pure cover plan (Term Plan) which covers them adequately and avoid all the Promotional and Marketing offers by Insurance companies.

The biggest worry with the Insurance companies is when they bring big celebrities into picture and does a mass campaign to promote their plans. Infact there are a set of people who get emotionally trapped by the Celebrity and buys the plan, without even understanding about the plan. Such types of Instances are very high in rural areas.



ICICI Prudential Advertisement by Amitabh Bachan:

Amitabh Bachan is a famous actor; there is no doubt about it. But in the above advertisement,he tries to communicate that buying life Insurance policy is just a two minute work which is not true. Buying policy is not as simple as making noodles. It requires lot of research to be done. Infact proper understanding of Various Terms and condition along with the policy clauses needs to be understood before Investing.

Aviva Children’s Plan:

The advertisement was a huge success in the media. People started relating their child with Sachin Tendulkar and started purchasing the plan without even understanding the plan. I was surprised to know from the presentation of Money Life Foundation that an entire village, which was 2 hours drive from Mumbai, had taken this plan because Sachin was in the advertisement. I seriously feel pity on those people who don’t even have a clue what the plan is all about. One thing I would like to share is that, Sachin is known as the God of Cricket, but not the God of Insurance. So please do not have any emotion or love on the products which are endorsed by your favourite stars

AEGON Religare Advertisement by IRFAN KHAN:

KILB Campaign (Kum Insurance Lene Ki Bimari). This Campaign was again a huge hit. This company was creating good awareness among public by educating that “Less Insurance is equal to No Insurance”. The message was clear that in current scenario, a person needs to opt for High Cover. Since the message was good, People blindly started opting for high cover plans from the same company. They failed to understand that the company had a poor claim settlement track record. (The information regarding claim settlement can be tracked at IRDA site).



Tips To Keep Your Money Safe: Register your mobile number with the service providers to get alerts on the transactions

and payments you have made. Look out for the small charges on unnecessary services (Survey reveals that any charges

below 100 are not tracked by the people and recently Private Banks have started charging for the SMS they send)

Avoid Bundled Proposals like Mortgage with Insurance (Bank generally forces to take insurance policy to

cover the loan): Please note that it is NOT AT ALL MANDATORY. Cards with Credit Protection (Bank charges certain amount for protecting the

credit, but it is not necessary to pay as this is already taken care by Master/Visa) Savings account with Accident Cover: Sincere Advice to all is to just avoid such

type of offers. Investors never make money in such type of offers Gold Loans to be avoided

Special Note to the youngsters:

Every youngsters needs to know that there is something called CIBIL, which tracks their information in and out. Any default can bring a big problem in their financial life. It is really very important to have good CIBIL Score, otherwise you will not be able to open a bank A/c, Demat a/c or get any loans like Personal loan or Home Loan.

The idea of giving such a brief note is to make you aware on things which you need to avoid in financial market. But do you think by reading it, you will be assured of not falling in any trap. I seriously doubt?

Only way to avoid such Money trap is by training your mind to such an extent that you don’t take any financial decision from your heart.

I would like to end my book with a small quote

“The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth”… Robert Kiyosaki

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