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Common Investment Frauds : What to Look for Before Investing

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Common Investment Frauds

How often have we realized we chose the wrong person or took financial advice from someone we didn’t know? How often have we heard sane minds warn us not to venture into the unknown? If only we had engraved in our minds the famous saying, “Simply put, beware of fraud,” we would be less plagued by common, mostly preventable investment frauds. 

Most financial scams we encounter are not just the invention of cunning minds; they reflect our callous attitude toward money. Common investment frauds happen when we let our hearts rule our heads. Ignoring important information about Internet scams or not checking our email feeds has caused a lot of heartache for those affected by investment scams.

In this blog post, we’ll explore some common investment scams and give you valuable information on how to avoid falling victim to them. 

5 Common Investment frauds that you should be aware of 

1. Affinity Group Fraud  

Have you ever wondered how often relatives or friends have pressured you to invest your savings in schemes that promise high returns in a short period? 

This type of family influence extends to socio-religious communities, close friends, or members of cat groups in which one or more members try to involve others in so-called investment opportunities. It is a very common strategy insurance agents use to persuade an older or influential group member.

This member will then influence others to invest in said instrument(s). Sometimes, this member also recounts incidents involving a suffering family member to create a false sense of belonging.

Investment fraud cases like this are like rattraps. You only realize the humiliation and pain when you find yourself being tricked into investment projects with offers of high profits or guarantees of security.

How to Avoid This Investment Fraud? 

  • Verify independently: Always verify investment opportunities independently, even if they come from trusted sources.
  • Be cautious of pressure: Don’t let personal relationships pressure you into making financial decisions.
  • Consult professionals: Consider seeking advice from financial professionals outside your social circle. 

2. Internet Fraud 

How often have you checked the validity of emails from so-called spokespeople for banks, insurance companies, or mutual fund companies? 

Fraudsters pretend to hold positions of authority and send emails to unsuspecting investors advising them to invest money in alternative schemes, transfer funds to other deposit accounts, funds, or policies, or reinvest the maturity proceeds of another policy into a fictitious financial instrument. This fraud is one of the most common investment frauds people get trapped in. 

How to Avoid This Investment Fraud? 

  • Avoid Spammy Mails:- The best way to save your money from such a money laundering operation is to ignore unsolicited emails suggesting unique investment positions. 
  • Verifying Email Authenticity:- No matter how remarkable the offers seem or how authoritative the emails are, verify the email’s authenticity by calling your bank or relationship manager. 

3. Pump and Dump Schemes 

The Securities and Exchange Board of India (SEBI) is investigating large-scale stock “pump and dump” cases. It is disappointing that investors still need to turn to unregistered brokers to manage their portfolios despite repeated government warnings about handing over their money to them.  

A widespread fraud related to the market is that some brokers influence subscribers on their social networks (like Telegram, WhatsApp, YouTube, etc.) to buy certain securities to increase demand artificially and thereby artificially increase the number of purchases. 

Once they attract the interest of shareholders, they sell shares at inflated prices to make a profit. Many investors suffered losses because the stock price dropped significantly after the sale. It is one of the most common investment frauds in the market.

How to Avoid This Investment Fraud? 

  • Do your research: Investigate a company’s financial situation, news, and announcements before investing.
  • Be wary of unsolicited advice: Be wary of unsolicited emails or messages that prompt an action. Verify information from reliable sources.
  • Set realistic expectations: Avoid investments that promise quick wealth.

4. Ponzi Investment Schemes  

You must have heard some investment against screaming “Ek ka do; do ka chaar”? This strategy attracts attention by devising schemes that promise high returns and depend on finding fresh investors to keep the plan operational. Nicknamed after the much-acclaimed fraudster Charles Ponzi, Ponzi schemes have caused many people to lose their investments in case they cannot find fresh recruits. 

Most Ponzi schemes take advantage of human greed. Look for investments based on logic and the market. Following a mass cult can bring devastation. While these investments may seem harmless initially, continued investment in these investments can result in significant amounts of money being unintentionally deposited. 

How to Avoid This Investment Fraud? 

  • Research before investing: Always thoroughly research investment opportunities, including the company’s background and leadership.
  • Pay attention to the guarantee: Be wary of investments that promise high, stable returns with no risk. If it sounds too good to be true, it probably is.
  • Check registration: Ensure the investment and its promoters are registered with the relevant regulatory authorities.  

5. Miss Selling of product 

Many banks tend to entice their customers to buy life insurance products disguised as endowment policies, cash-back schemes, or unit-linked insurance schemes. In most cases, retirees who do not need insurance are victims of this practice when salespeople persuade them to invest their lifetime money in these low-income products.

At an advanced age, more investors prefer investing in low-risk instruments. The guarantee of guaranteed profits will attract these vulnerable people. 

How to Avoid This Investment Fraud? 

  • Avoid Pressure Sales: Never feel pressured into investing, whether by family members, friends, or bank employees. Take your time to evaluate and decide.
  • Know your needs: Take the time to understand your financial goals and what you need from investing. Clear goals will help you make wise decisions. 


Safeguarding your investments from fraud is like protecting your wallet. Be watchful, question anything that seems too good to be true, and double-check investment offers. If you smell something fishy, report it. Stay informed, take precautions, and invest wisely. Remember, a well-thought-out investment is your best bet for financial security and avoiding any common investment frauds mentioned above. 

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