CA Ambar Dalal absconds with investors' money: Here’s how to spot a fraud investment scheme

If the promised returns are very high – not in line with what most other products in the market are offering – that should give you pause for thought.

All the awareness campaigns by regulators and cautionary messages by finance experts do not seem prevent people from falling into the trap of  sham investment schemes offering ‘attractive’ returns.

The latest to fall victim are investors with Mumbai-based chartered accountant, Ambar Dalal, who went missing recently after he failed to return investors' money, as per several news reports. A police complaint has been filed against Dalal who was promising people a monthly return of 1.5 – 1.8 percent. That’s a return of 18 to 22 percent per annum.

Unfortunately, this is not the first time that investors have been duped and perhaps, not the last. Here are a few tips on how to steer clear of such scams and invest your money safely.

Is your advisor qualified?

Know who you are dealing with. Before you begin taking financial advice from someone or investing your money through them, check if they are what they claim to be.

“Don’t just go to anyone for investment advice. Check if they have the necessary license, or if they authorised to do what they are doing,” says Renu Maheshwari, a SEBI-registered investment advisor and CEO and Principal Advisor at Finscholarz Wealth Managers.

For example, someone offering you financial advice must necessarily be registered as an RIA or Registered Investment Advisor with securities market regulator SEBI. To know if that is really the case, you can check if that individual’s / entity’s name and other details are mentioned in the list of registered advisors on the SEBI website.

If you are investing in mutual funds (MF) via a mutual fund distributor (MFD), you can check for that person’s / entity’s AMFI (Association of Mutual Funds in India) registration number here. The AMFI website also mentions a list of MFDs who have been suspended or terminated from running an MF business.

Likewise, when investing with a PMS (portfolio management service), it helps to run a quick check to see if that entity is registered with SEBI.

That way, you at least know if you are dealing with a regulated entity and not a fly-by-the-night operator.

Advisors or manufacturers?

What’s equally important is to know is whether the person / entity that you are trusting your money with, is authorised to take money from you.

Ravi Saraogi, a SEBI RIA and Co-founder of Samasthiti Advisors says, “People need to know the difference between advisors and product manufacturers. RIAs offer financial advice but they can’t take client money. People think if they are taking advice, they have to give money to that person to invest it on their behalf. Only product manufacturers can collect investor money and for that they must be registered with SEBI either as a mutual fund, PMS, or an AIF (alternative investment fund).”

In the case mentioned in this article, people were giving money to a chartered accountant to invest in some commodities and for trading – something that he was not authorised to do in the first place. This itself should have raised an alarm.

Also read: Where to invest Rs 10 lakh today? Swarup Mohanty of Mirae Asset has the answer

Invest in regulated investments

There are enough number of regulated investment products in the market that one can choose from.

So, play it safe when it comes to products that don’t fall under regulatory supervision. For example, before you invest in cryptocurrencies, keep in mind that it is still unregulated in India and comes with high volatility.

Then, take the case of digital gold that can be bought and sold on many online platforms. While it is backed by actual physical gold stored in vaults that are monitored by a trusteeship company in customer interest, unlike gold ETFs and SGBs (sovereign gold bonds), it is not regulated either by RBI or SEBI. Financial advisors, therefore, do not recommend investing in it.

Also, when investing money, ensure that you are not being asked to transfer money to an individual’s bank account. If that is what’s happening, you must not proceed.

“When you invest in mutual funds, your money goes to the AMC’s account or when you invest in an AIF, it gets transferred to a trust (when AIF is incorporated as a trust). So, there is a registered institution behind these investments. No individual or unregistered entity is authorised to pool people’s money and invest it on their behalf,” says Saraogi.

Online or physical meeting?

Today many people make investment decisions over a phone / video calls. While this offers convenience, it comes with grave risks.

When investing money, especially large sums, it helps to have an in-person meeting with that person and his team at his office. Many fraudulent entities may not even have a physical presence or may turn out to be a one-man show. While this approach is not foolproof, it may still be a telltale sign that all is not right.

Super high returns promised? Then, you probably won’t get them!

If the promised returns look too good to be true, then they probably are. Many fraudulent schemes thrive on luring gullible investors with tempting returns. If the promised returns are very high – not in line with what most other products in the market are offering – that should give you pause for thought. At the very least, this should encourage you to question the person / entity concerned about what exactly will drive such returns and how other products in the market are unable to match such returns.

Offering advice on how people can avoid getting trapped in investment scams, Maheshwari says, “While the regulators do their bit, it is impossible to stop such events. So, protect yourself. Is it our greed that is making us prone to such scams? If we watch our emotions, no one can exploit us.” Taking the example of when stock markets are at a high, she says that it is in such times that people look for opportunities to make a quick buck in a short time and scamsters promising unrealistic returns spring up.