What are Unregulated Deposit Schemes?

There have been many instances wherein gullible investors have been lured into investment schemes that promise higher returns than what is available in the market without much downside risk. Such unregulated investment schemes are called Ponzi schemes and have very high risks. Unregulated deposit schemes are deposit schemes undertaken by individuals, groups of individuals, or a company for business purpose which are not registered under any of the nine regulatory authorities responsible for overseeing all kinds of deposit schemes in India. These schemes usually promise very high returns with little or no risk. 

Thousands of investors have lost their hard-earned money in many such unregulated deposit schemes, and this compelled the Government to pass the Banning of Unregulated Deposit Schemes Act in 2019. This Act lists down regulated deposit schemes and also includes investment options like Mutual Funds and Portfolio Management Services (PMS) which are not conventionally considered as deposit schemes.

When you come across an investment option that looks very promising with very little risk involved, remember that risk and return always go together. There is no free lunch in the world and a higher return will always be accompanied with a higher risk compared to an investment option that offers lower return. Unregulated deposit schemes are aimed at cheating small investors who don’t understand this trade-off between risk and return. These fraudulent schemes operate purely by luring investors into schemes with attractive returns without talking about the risk involved. 

The biggest risk of unregulated investments is that the return is not guaranteed and there is a high probability that the promoters of the scheme may not honour the payments promised under the scheme. Since the scheme is not registered under any of the nine listed regulatory authorities, you cannot approach them for recovering your money in case the scheme turns out to be a fraud.

The Unregulated Deposit Schemes Act 2019 makes it illegal to take such deposits, fraudulently default on the payments promised to the depositors, or even promotion of such schemes. Such offenses have been made punishable. Hence next time you hear of an investment schemes that promises you much higher return than what you can get elsewhere and doesn’t seem risky, promises to double your money in some time or promises to make you a millionaire without putting anything at stake, try to check on who is running the schemes, if the scheme is registered with any of the regulatory bodies listed in the image here and search for news around that scheme.