- Date : 23/05/2021
- Read: 4 mins
Know about illegal investment avenues and how you can pick safe investments with high returns in India.
Investments are hailed as the best way to improve your standing, ensure financial freedom, and live a secure life. However, there are various types of investment options in India and picking the right one can be a bit of a hassle. When you pick out an investment product, it is common to check if the product meets your long-term and short-term goals, risk profile, and time horizon.
Another aspect that you should look into is whether the investment you are interested in is legal. Read on to know more about illegal investment plans and how to ensure that you pick safe investments with high returns in India.
Investment activities that are considered illegal in India
1. Insider trading:
Insider trading is considered to be an illegal investment scheme in the country. As the name suggests, insider trading refers to when an individual trades in the market on the basis of confidential information they get about the listed company because of the nature of their work. This information is not available to the general public and hence gives an unfair advantage to those who may have inside information. Investing in stocks in this manner can put you in legal trouble. It is also considered morally improper.
2. Equity crowdfunding:
Crowdfunding is used to raise money for a business or venture. With crowdfunding, a number of investors come together to raise a significant amount by investing small amounts of money each. Crowdfunding typically happens through the internet. While there are several popular types of crowdfunding, such as donation crowdfunding, and peer-to-peer crowdfunding, equity crowdfunding is illegal in the country.
Digital equity crowdfunding has been unauthorized by the Securities and Exchange Board of India (SEBI). Equity crowdfunding acts like an investment avenue for the people contributing the funds. In other forms of crowdfunding, the person contributing money donates the funds and is considered a benefactor. However, in equity crowdfunding, the person contributing money is not a benefactor but an investor. In exchange for investing in a company, investors are given equity shares. A lot of companies resort to equity crowdfunding as it is easier than getting a business loan. The eligibility to get a business loan can be strict with the collaterals involved. Moreover, the interest rate can also be high depending on the credit score.
As per reports, India will propose a new law against cryptocurrency investment. Under the law, buying bitcoin – or transferring, issuing, holding, or possessing crypto assets – will be criminalised. Although the bill has not yet been put to force, it is likely to be implemented by the current government soon enough. If passed, investors will have six months to liquidate their investments, post which they will be penalised. If the law gets passed, India will be the first country to completely criminalise cryptocurrency investment.
Related: 5 Ways to identify a Ponzi scheme and stay safe
How to verify the authenticity of a product before investment
In order to ensure that you pick investments that can promise you high returns, tax savings, and safety, it is important to follow the steps given below:
- Consult a trusted financial advisor: Regardless of whether you are new to investing or a seasoned investor, a financial advisor can add a lot of value to your financial plan. A financial advisor is a professional with relevant experience and expertise in the field to gauge if an investment is right or not. They can help you pick safe investment options with high interest earned.
- Pick government-backed products: Savings schemes backed by the government can be secure investment options in India. Public Provident Fund (PPF), National Pension Scheme (NPS), etc. are two safe investment products that not only give high returns but also ensure the protection of your invested capital.
- Stay up to date: It is vital to remain up to date about the changing laws in the country. Cryptocurrency investment was legal in India thus far but this looks set to change in the near future. These changes in the law can affect your investment strategies and future goals. So, it is advisable to watch the news, read the newspapers, or subscribe to online newsletters on investment policies in India to ensure that you are always well-prepared.
There are diverse investment options in India but there are also as many financial scams and frauds that occur every now and then. As an investor, you must be careful to choose an investment avenue that is legal and verified. Simple things like picking stock brokers registered with SEBI, consulting a financial advisor to be sure of your investment decision, etc. can be helpful in your investment journey. How to protect your credit reports from fraud?