Wednesday, 6 August 2008

Avoid the lure of easy money

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There is a proverb “The lamb always believes the butcher”. The same logic seems to apply to middle class wanting to earn that extra buck. They always end up with guys who swindle their money. Be it the chit funds, the MLM’s or the “stock market” investment schemes which promise 200 to 300% returns, these swindlers have a field day and most of them never get caught.

The unjustified and irrational greed of people who go and invest in such schemes is to be blamed. It is virtually impossible for the law enforcing agencies to keep a watch on every such scheme in a vast country like ours. The RBI frequently comes out with advertisements in various media warning people against such schemes. The police in some cases have traced the culprits and tried to recover the amount but given the long and winding process of law suits in our court, it takes ages and generations for one to recover the money.

People have to be intelligent enough to understand that when the best bank in the country itself cannot give more than X% of percent, how can an individual give X+10% or 20% returns? Either he is defrauding the people or he is investing in too very risky business, in which the chances of a failure are more than success.

MLM are one more form of defrauding money. I do agree that some of the MLMs are very good and help people to earn that extra amount of money. However, this is applicable only to MLMs which have a varied product base. Most of the MLMs just operate on the basis of you join and also join two on your left and two on your right (when we pull the shutters, you get a kick on the middle from all those you joined in our scheme). There is no product sold and money made. How do people expect such schemes to earn them money? I was part of an MLM. There was no problem with the MLM but there was an affiliated training program which sucked my interest out of carrying on the business. This training program required buying lots of cassettes, book and attending countless meetings. More than selling the product, emphasis was laid on getting newer people to the meetings and selling cassettes. The cassettes were priced at ridiculously high rates. Books were priced at higher rates than what you can get the original version for in reputed book shops. Unnecessary hype was created about those who addressed the audience in the meeting like “My children go to the same school as xxx cricketer in Australia”, etc, etc. Those who would want to do a MLM business would do well to avoid such shady training schemes.

Most investment analysts say that a return of 30-40% in the share markets is very good and if it is in the range of 70-80% in a year, such investments are considered multi-baggers. You can make 200-300% returns in the market if you stay invested over a period of 4 to 5 years but not in a matter of 5 or 6 months. Anybody who promises such returns needs to be reported to SEBI and investigated upon. Our people will instead handover the life savings to such cronies and later scream that the market is full of scams.

People have to get realistic. The lure of easy money is tempting for one and all but there is no such thing called easy money. Earn extra money the intelligent way not the greedy way. Have a check whether the returns promised are feasible. Find the credentials of the person who is promising the returns? A swanky rented office means nothing when they call it quits.

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