Financial fraud could happen to you

New Delhi: The history of financial world is replete with instances of cheating.

It has happened many times in the past and it will continue to happen in future too however sad it may be to see people losing their life’s savings to fraudulent schemes.

Yes we have laws; we have regulators; we have police; we have courts. But all these are not a deterrent for a criminal.

He knows that there are many naive investors around and they offer him a great opportunity to make a fast buck at their cost.

No doubt these scamsters deserve a tough punishment, but a part of the blame does lie with us too.

It is our responsibility to be always on guard. We double lock our doors when we go out. We keep our jewellery etc. in bank lockers. We install anti-theft devices.

Similarly, we need to take certain precautions when it comes to investing.

Don't be carried away by 'high-returns'

One of the biggest reasons for the repeated success of swindlers has been human greed. As long as we have a get-rich-quick mentality, we have a good chance of becoming a victim to some kind of a financial fraud. There is no short cut to becoming rich.

No one can give you returns, which are not in line with the market reality. If for some reason such an opportunity does exist, why would someone tell you about it?

Won't he himself beg, borrow or steal to invest in the so-called 'golden' opportunity? Why should someone hand over to you the formula to becoming rich, while he himself is happy with measly commission? Think.

Stay away from persons who prey on your fears

Next to greed, fear is the other emotion, which is very effectively used by the cheats.

Many of us are not comfortable with numbers. We get intimidated by all the financial terminologies thrown by the sales agents. The whole idea is to put you on defensive.

Do not let them overwhelm you with numbers and data and financial jargon.

Ignorance is no crime. But instead of being bullied or coerced, go on the front foot. Be firm and say No to anything you do not understand.

Never believe in word-of-mouth promises

Always remember - 'If it's not written, it's not true'. This mantra will save you a lot of trouble not only in your investments but also in many other things in life.

If a person or a company is unwilling to put any of its promises on paper, there is high probability that it has no intention to honor it.

Of course this doesn't mean that the opposite is true – that a person/company will not go back on his written word.

But the chances are lower as he can then be legally held responsible and face punishment in the court of law.

There's no substitute for research

Do not trust 'anyone' – be it even your friend. Who knows he himself may not be aware that the investment opportunity could be a fraud.

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Therefore, make an effort to get all the details. Study them. Take opinion from various people – friends, broker, financial advisor etc.

Today internet also could be a very useful ally. Check with a few independent sources too, who do not gain anything from the scheme and are knowledgeable enough to understand.

This doesn't mean that you have to become an expert yourself. But you should have sufficient knowledge not to be taken in by the unscrupulous sales agents.

Consciously stay away from all cold calls and unsolicited e-mails/letters.

Don't buckle under high-pressure

More often than not you will find yourself being asked to decide and invest in an investment opportunity immediately. These scamsters will not give you sufficient time to do your research.

It will be presented to you as a golden opportunity closing in a day or two. Or it is available only to a limited number of people. Don't be swayed by the high-pressure tactics of the sales agents.

Give it a pass. Never ever invest in a hurry unless you have well understood the scheme.

Good manners have fooled many a people

There is a natural tendency in us to be courteous to people who are polite with us. Cheats know this and will be at their best behavior when selling you an investment option. They will sound very friendly and concerned about your financial well being.

Many people have fallen for their wit and charm and ended up buying a losing proposition. Do not be get impressed by glib talk.

Actively monitor your investment

Do not just forget about your money after the investment has been made. Regular monitoring is a must. It may help you to detect a fraud, which you might have missed out earlier before investing and help you to salvage your money.

Or it is possible that to start with the investment was not bad, but later the company got into financial problems, which it tried to cover-up.

If you were aware of the regular developments, it could give you a chance to get out in time.

Any suspicions or negative news about your investment should be rigorously explored. Don't just sit back and hope that things will get better.

Also, it is important that you control your investments. Don't give away your day-to-day money management to someone else just to prevent inconvenience.

Keep records properly

Keep all documents relating to the investment in a proper condition. In case the investment does turn out to be a fraud, you would have something to help you to take legal recourse.

All contracts, correspondence, brochures etc. will be very useful in any investigation in the future.

The bottom line is simple

* Do not be greedy (I know it’s easier said than done)

* Do not fear – not all jargon is difficult to understand

* Don't think it can't happen to you.

(The author, Sanjay Matai, is an investment advisor.)