“Looking for an investment scheme with a fixed return every month? if yes, then here is the best offer for you. Just give me your money and I will give you a 7% return every month. Yes, every month! “
That’s quite attractive, isn’t it? Investing in this scheme can make you rich in a short time. You can fulfill all your dreams.
So, how many of you are ready to invest in this scheme?
Almost all of you. Great! Congratulations, by investing in such schemes, you kickstart a Ponzi Scheme. But the bad news is, that it wouldn’t be you but the company or individual who introduces it that becomes rich.
Disappointed?
But this disappointment is better than the sadness and grief you will experience on losing your entire capital. Let’s get into the details to learn how does a Ponzi Scheme work, but first, understand its meaning.
What is a Ponzi Scheme?
A Ponzi Scheme is one type of financial fraud where a company or an individual promises high returns with little risk to investors. The Ponzi scammer uses the funds of new clients to provide returns to old & existing clients.
With time, when he failed to add new investors, he fled with all your capital.
You can easily relate to one of the Bollywood Movies, ‘Phir Hera Pheri‘, and the context ‘21 din me paisa double’‘. All this is something that you will hear from scammers promoting such schemes.
Let’s now learn how it works.
How does a Ponzi Scheme Work in India?
Ponzi scammers generally reach out to people who live in rural areas and have little knowledge of investment regulations or groups of retired people who have enough money to invest.
Here are the steps of how does a ponzi scheme work and leads to financial distress.
Step 1: The Lure of Easy Money
Picture this: someone comes to you with a shiny new investment opportunity.
“Put in ₹10,000, and I’ll return ₹5,000 every month.”
Tempting, isn’t it? The promise of high returns with little risk is enough to make anyone sit up and listen.
The people behind these schemes know exactly how to pull you in. They’re experts at selling “too good to be true” offers.
Step 2: Collecting the Cash
Once you bite the bait, you put your money into the scheme.
But here’s the thing – this is where the magic happens for the people running the scam. Instead of investing your ₹10,000 in a real business or product (which is what you might think is happening), that money is being used to pay off earlier investors.
So, if someone invested before you, their returns are paid from your contribution.
Step 3: The First Taste of Profit
After you’ve invested, you start to get the returns promised to you.
You see your ₹10,000 turning into ₹15,000 in a few months. You’re convinced this is legit.
You may even be encouraged to invest more. But remember, those returns are not coming from any real business or investment; they’re just coming from the money of new investors, just like you.
This creates a false sense of security, as people are naturally inclined to trust something that’s already paying out. And the Ponzi scheme keeps going, because the cycle of new investments never stops.
Step 4: It Starts to Grow
Now that you’ve experienced the easy returns, you’re all in.
The person behind the scheme encourages you to bring others in. You’re now actively recruiting friends, family, or anyone who will listen, promising them the same returns you got. More and more people invest, and the cycle continues.
The scheme grows exponentially. More people invest, which allows the scheme to pay out returns to older investors. Everyone’s happy, for now.
Step 5: The Collapse
But as with any house of cards, it all comes crashing down. Eventually, the scheme runs out of new investors to feed the system. When that happens, the money stops flowing.
Some investors may be left hanging, unable to withdraw their funds. If the scheme were large enough, it might even make headlines.
But by the time authorities catch wind of it, the money is usually long gone, and the person behind the scheme is nowhere to be found.
Why Do Ponzi Schemes Work?
It all boils down to human psychology. People want to believe that easy money is possible. When someone presents an opportunity that looks too good to pass up, it’s tempting to take a leap of faith.
And once the scheme starts showing returns, it becomes self-sustaining as more people join in. But the reality is, it’s a ticking time bomb.
Ponzi schemes thrive because they play on people’s greed and fear of missing out (FOMO). The allure of quick profits blinds individuals to the risks involved.
How to Identify a Ponzi Scheme
Now that you know how they work, you’re probably wondering how to spot one. Here are some warning signs:
- Unrealistic returns: If something promises returns that are too high with little risk, it’s probably a scam.
- No clear investment strategy: If they can’t explain how the money is being invested or used, be cautious.
- Difficulty withdrawing money: Ponzi schemes often make it hard for you to take out your investment, especially when new investors are hard to come by.
- Over-reliance on new investors: The scheme depends on the constant influx of new people to stay afloat.
How to Report a Ponzi Scheme?
If you suspect a Ponzi scheme, it’s crucial to report it immediately.
To get assistance, you can register with us, and we will help you in filing a complaint and in proper follow-ups with the respective bodies.
Conclusion
Understanding how does a Ponzi scheme work, it is clear that such schemes are seductive, but they’re built on deception and greed. They may promise you the world, but in the end, it’s just a game of smoke and mirrors.
The only real “winners” are the people running the scam – and they’re usually long gone by the time the scheme collapses.
So, the next time you come across an investment opportunity that promises high returns with little effort or risk, remember: it’s probably too good to be true.
Keep your eyes open, stay informed, and never let greed cloud your judgment.
