Mod 2 Income Management PDF

Mod 2: Income Management (12 hours)  Provident Fund Schemes EPF, PPF and NPS  Pension, Retirement and Estate Planning  4% rule of Financial Freedom  Pension Schemes run by Government of India: NPS, Atal Pension Yojana  Post Offi...

Mod 2: Income Management (12 hours)  Provident Fund Schemes EPF, PPF and NPS  Pension, Retirement and Estate Planning  4% rule of Financial Freedom  Pension Schemes run by Government of India: NPS, Atal Pension Yojana  Post Office Saving Schemes: Sukanya Samridhi Yojana, National Saving Certificate  Life Insurance: Term, Endowment, Whole life, Unit Linked Insurance  Rule of 20X  Personal Accidental Cover, Motor, Health and Group Insurance  Basic Insurance Schemes Run by Government of India  PM Suraksha Bima Yojana, PM Jeevan Jyoti Yojana, Ayushman Bharat  Protection against Ponzi Scheme and Fraud, Grievance Redressal Agencies for Banking, Securities Market, Insurance and Pension Industry Pay Slip and Salary Slip of an Employed A salary slip or payslip is a document issued monthly by an employer to its employees. It contains a detailed breakdown of employee salary and deductions for a given period. Any company/organisation is leagally bound to issue a pay slip periodically as proof of salary payments to its employees and deductions made. Why is Salary Slip Important?  Proof of employment  Income tax planning  Seeking future employment  Avail loans and credit card  Avail government benefits Difference between CTC and In-hand/Gross salary CTC: Cost to the company is the total amount spent by the employer on an employee. It includes basic salary plus all the allowances. Gross Salary: An employee receives before any deductions. Net Salary: Salary received by an employee after all the deductions. ABC Company Ltd No.123, Residency Road, Bengaluru – 560028 Pay Slip for the month of Jan 2023 Emp ID Employee Name PF No Pay Days Designation Department PAN Bank A/c No. Aadhar No. UAN Earnings Deductions Salary Head Amount Salary Head Amount Basic PF DA PT HRA TDS Spl All Loan CA Medical Allowance Total Net Salary Total Earnings - Total Deduction In words Signature Earnings 1. Basic: Basic component of salary and constitutes 30-35% of the salary. At junior levels, the basic tends to be high. As the employee grows in the organisation, other allowances tend to be higher. The salary is 100% taxable in the hands of the employee. 2. Dearness Allowance: It is paid to offset the impact of inflation which is usually 30-40% of basic pay. It is directly based on the cost of living.  Note: For Income Tax and EPF, basic and DA are considered as pay, therefore EPF and Income Tax is deducted on these two. 3. HRA: House Rent Allowance depends on the city of residence of employee. For a metro city, it will be 50% of basic pay, for other city it will 35-40% of basic pay. Since it is an allowance, it is exempted from income tax upto a certain limit, provided employee pays the rent. 4. Conveyance Allowance: Amount paid to cover travelling expenses (to and fro from work place). Since it is an allowance, it is also exempted from tax to certain specific amount. 5. Medical Allowance: The amount an employer pays to employee for medical expenses during the term of the employment. One can save income tax on this as well, to certain extent. However, employee receives this amount only on the submission of medical bills as proof. 6. Special Allowance: This includes performance based allowance which are usually paid to encourage employee to work better. This vary from different organisations, it is 100% taxable. Deductions: 1. Professional Tax: A small amount of tax levied by State governments which is payable every month. Ex: It is Rs.200 every month in Karnataka. 2. EPF: Employee Provident Fund is the accumulation of funds for employee’s retirement period. It is 12% of basic and DA 3. TDS: Tax Deducted at Source is the amount deducted by employer on behalf of the income tax department. It is based on the gross tax slab of the employee. This can be reduced by investing tax exempting investments (will be discussed in the Module 4). 4. Loan: Sum amount of money deducted only if an employee has taken loan by providing employer’s proof. Government Schemes for Various Savings and Investment Options Government of India accepts deposits from the public and some of them are also tax saving instruments. National Saving Certificates (NSC), Kisan Vikas Patra, Sukanya Samridhi Deposit, Public Provident Fund (PPF) etc are some of the examples of various schemes run by Government of India. These schemes have different durations for investments and carry specific interest rates. Employee Provident Fund (EPF) Employees’ Provident Fund Organisation (EPFO), India is one of the World’s largest Social Security Organisations in terms of clientele and the volume of financial transactions undertaken. Employee’s Provident Fund is a social security benefit that an employee may get after the employment period or at the time of retirement. EPF is a retirement savings scheme for salaried professionals. It is a savings platform that enables employees to save a portion of their monthly salary for use upon retirement or unemployment. A large number of salaried professionals heavily rely upon the accumulated sum in their EPF accounts for post-retirement stability. Objective: To provide post-retirement benefit for the employees/their legal heir (in case of death), employed in an establishment to which EPF Act applies Coverage: It covers every establishment in which 20 or more people are employed Contribution: Employee’s contribution 12% of EPF wages and employer’s contribution 12% is divided between EPF (3.67%) and EPS (8.33%) UAN (Universal Account Number), a 12 digit number that the EPFO provides to an employee. It remains same throughout life irrespective of the number of jobs one changes. Provident Fund Scheme Pension Scheme Insurance Scheme Accumulation plus interest Monthly pension for In the event of premature upon retirement, resignation, members on retirement, death of a member while in death disability service, an insurance upto Rs.7lakh is payable Partial withdrawal for Monthly pension for No premium is charged to specific expenses such as dependents of deceased EPF members for this benefit house construction, higher members viz widow(er), education, marriage, illness children, parent/nominee etc Key Features:  EPF receives contribution from employee and employer as well.  It accumulates compound interest on monthly running balance basis, currently at 8.10%  If no contribution is received into a PF account for 3 consecutive years the account shall not earn any interest after 3 years from the stopping of contribution. EPF 3.67% Employee's Employer's Contribution Contribution EPS 12% 12% 8.33% Total Contribution received by EPFO Given below is an example of EPF calculation assuming that the basic salary and DA of the individual are Rs.15,000 (minimum threshold)  Basic Salary plus DA: Rs.15,000  Employee's contribution towards EPF (12% of Rs.15,000): Rs.1,800  Employer's contribution towards EPF (3.67% of Rs.15,000): Rs.550  Employer's contribution towards EPS (8.33% of Rs.15,000): Rs.1250  Total monthly contribution towards EPF by an employer (Rs.550 + Rs.1250): Rs.1800 The total contribution made by the employee and employer per month: Rs.3600 If the employee’s basic plus DA is Rs.35,000, an employee can contribute 12% of that amount, upon request. Employer’s contribution depends on the decision of the organisation, either they can contribute more or limit to minimum threshold of Rs.15,000 Earlier, EPFO was providing pension (EPS) calculated on the salary of the employee with a maximum cap at Rs.15,000. Now that the cap of Rs.15,000 has been removed, the EPS contributions will be calculated based at 8.33% of the actual salary (Basic+DA) of the employee. Employee’s Pension Scheme (EPS) It is a superannuation Fund i.e. a regular payment made into a fund by an employee towards a future pension. This scheme backed by the Government of India. The nominees will also receive a pension under this scheme. The employer contributes 8.33% of the 12% share of the employee's basic salary and DA towards the scheme. However, the maximum amount that can be contributed towards the scheme is Rs.1,250.  The individual must be a member of the EPFO.  The individual must have completed at least 10 years of service.  The individual must have attained the age of 58 years. 𝑃𝑒𝑛𝑠𝑖𝑜𝑛𝑎𝑏𝑙𝑒 𝑆𝑎𝑙𝑎𝑟𝑦 𝑋 𝑃𝑒𝑛𝑠𝑖𝑜𝑛𝑎𝑏𝑙𝑒 𝑆𝑒𝑟𝑣𝑖𝑐𝑒 Pension = 70 Note: Pensionable Salary is average of last 60 months salary. 1. Ms. Isha joins Employee’s Pension Scheme in 2005 at the age of 33 and superannuates at the age of 60 and contributing Rs.15,000. What would be her pension amount? Solution: 15,000 𝑋 27 Pension = 70 She will receive the pension amount of Rs.5,785. UMANG Unified Mobile Application for New-age Governance Application is a mobile app, a Digital India initiative of Ministry of Electronics and Information Technology, by the Government of India for access to central and state government services. EPFO users can use this app to monitor the EPF account balance, pension balance by using OTP and registered mobile number. UMANG app is connected to many other government schemes like gas booking services, Aadhar card, NPS, income tax, Digilocker, Income tax etc. Self Study Given below is an example of EPF calculation assuming that the basic salary and DA of the individual are Rs.25,000  Basic Salary plus DA: Rs.25,000  Employee's contribution towards EPF (12% of Rs.25,000): Rs.3,000 o Employee's contribution towards EPF (3.67% of Rs.25,000): Rs.917.50 o Employee's contribution towards EPS (8.33% of Rs.25,000): Rs.2082.50  Employer's contribution towards EPF on Rs.15,000, which is the threshold income (12% of Rs.15,000): Rs.1800  The total contribution made by the employee (Rs.3000) and employer (Rs.1800) per month: Rs.4,800 Further Information on EPF and EPS: https://www.epfindia.gov.in/site_en/FAQ.php#:~:text=Ans%20%3A%20There%20is%20no %20restriction,from%20the%20stopping%20of%20contribution Public Provident Fund (PPF) PPF is a government backed, long term small savings scheme. The main thought behind this product was that people who work in the unorganised sector or are not covered under Employee’s Provident Fund (EPF) scheme can invest in PPF to build their retirement corpus. This scheme has been made available in post offices and banks across the country, so that more and more citizens can have access to this investment option. Since PPF provides guaranteed returns, people who are more risk averse prefer to invest in this product. The scheme offers an investment avenue with decent returns coupled with income tax benefits. Key Features:  Minimum deposit Rs.500 and Maximum deposit Rs.1,50,000 in a financial year  Maturity Period of 15 years and current Interest rate is 7.1% p.a., compounded annually  Loan facility is available from 3rd financial year upto 6th financial year  Withdrawal is permissible from 7th financial year (not more than 50%)  After maturity, account can be extended for any number for a block of 5 years  Account can be retained indefinitely without further deposit  Deposit qualifies for deduction under Section 80-C of Income Tax Act Compound Interest Rate: Annuity Your investments can give you better rewards when savings/investments are compounded over longer horizons. Compounding, in short, is earning interest on previously earned interest (accumulated investment). Annuity is the fixed amount (payment/receipt) each year for a specified number of years. In the case of PPF, an individual can make an annual payment between Rs.500 to Rs.1,50,000 for 15 years.  1. Ms.Asha is making annual payments of Rs.1,00,000 towards PPF investment for 15 years at 7.1% interest rate. How much money would she receive/accumulate during the maturity period? 𝑛 (1+𝑟) −1 Fn = P[ ] 𝑟 15 (1+0.071) −1 Fn = P[ ] 𝑟 15 (1.071) −1 Fn = 1,00,000[ ] 0.071 ( 2.798 −1) Fn = 1,00,000[ 0.071 ] Fn = 1,00,000 (25.324) Fn = Rs.25,32,400 If she makes an investment at the beginning of each year instead of end of the year, the accumulated amount increases due to Compound Interest Annuity Due (Cash inflow occurring at the beginning of each period is called Annuity Due) 𝑛 (1+𝑟) −1 Fn = P[ ](1+r) 𝑟 15 (1+0.071) −1 Fn = P[ ](1+0.071) 𝑟 15 (1.071) −1 Fn = 1,00,000[ ] (1.071) 0.071 ( 2.798 −1) Fn = 1,00,000[ 0.071 ] (1.071) Fn = 1,00,000 (25.324)(1.071) Fn = Rs.27,12,139 https://groww.in/calculators/ppf-calculator (Online PPF Calculator) Pension, Retirement and Estate Planning: Retirement is when one chooses to permanently leave the workforce behind and do not generate any financial resources. Therefore it is crucial to generate adequate financial backup during this period. The retirement age in India is between 58 and 65 years. While the age is 58 years for private employees, it is up to 65 years in many government departments. A pension provides a monthly income to the people during their unproductive years/ retirement. Estate planning is the preparation of tasks that serve to manage an individual's asset base in the event of their incapacitation or death. It is passing assets/investments down from one to another. A pension holder would pass on his asset to the spouse, then to nominees. Need for pension  Decreased income earning potential with age.  The rise in nuclear family  Migration of earning members  Rise in cost of living  Increased longevity  Dignified life in the old age due to less financial dependence. National Pension System (NPS) NPS is a government sponsored social security scheme for effective long term retirement planning. Investors are encouraged to invest in their NPS during their employment.  It is a market-linked voluntary contribution retirement scheme.  Post retirement, about 60% of the matured sum can be withdrawn either lumpsum or instalments, while the remaining 40% must be used to purchase annuity.  Any Indian national between the age of 18 and 65 can join it. By investing in NPS, you can build a retirement corpus and avail pension amount during your retirement years. Since, it is a retirement scheme, an investor cannot redeem his money before the age of 60. A long term lock-in period ensures that the money is used only for post-retirement purpose. Partial withdrawal is allowed for specific needs like children’s education, children’s marriage, critical illness. Atal Pension Yojana (APY) Atal Pension Yojana, a pension scheme launched by Government of India is focussed on the unorganised sector workers. Under APY, minimum guaranteed pension of Rs.1000 or Rs.2000 or Rs.3000 or Rs.4000 or Rs.5000 per month will start after attaining the age of 60 years, until death, depending on the contributions by the subscribers for their chosen pension amount.  Any Indian citizen can subscribe between 18-40yrs, having a savings bank or post office savings bank account, irrespective of their employment status (employed or unemployed)  The contribution amount depends on the age, time of opening, frequency of contribution and pension slab chosen.  Contribution frequency: Monthly/quarterly/half yearly  Closure not before 60yrs and Interest rate 7.1%  Once the subscriber dies, his/her spouse will receive the exact pension amount. After the death of the subscriber's spouse, the nominee of this account gets a corpus amount. This corpus amount is the total of the premiums subscriber has paid towards the scheme Pension Amount Corpus Amount Rs.1000 Rs.1,70,000 Rs.2000 Rs.3,40,000 Rs.3000 Rs.5,10,000 Rs.4000 Rs.6,80,000 Rs.5000 Rs.8,50,000 Post Office Saving Schemes Post office is one of the oldest organisations in India, initially focussing only on delivering mail (post) and later started providing an array of other financial services i.e. banking, insurance and investments. The biggest advantage of these schemes is their sovereign guarantee i.e. it is backed by the Government of India. India Post Payment Bank (IPPB): IPPB – Internet/Mobile Banking for Post Office National Savings Certificate It is a fixed income scheme that can be opened at post office and is a low risk product and highly secure.  A Government of India initiative, primarily to invest while qualifying for deduction under Income Tax Act  Any number of accounts can be opened under the scheme  Can be opened from any post office  Joint account allowed, can be opened by an adult on behalf of a minor  Maturity period of 5 years  Minimum deposit of Rs.1000 and thereafter in multiple of Rs.100. No maximum limit  Interest rate 6.8% is compounded annually but payable at maturity Ms.Isha is planning to invest Rs.50,000 in National Saving Certificate. What would be the maturity value of her investment, given, maturity period of 5 years and interest rate is 6.8%? Note: Interest rate is compounded annually. Therefore, use Compound Interest Rate formula. Future Value = P(1 + i)n = 50,000 (1+0.068)5 = 50,000 (1.389) = Rs.69,475 Maturity value of Rs.50,000 invested in NSC after 5 years at 6.8% will be Rs.69,475 Sukanya Samridhi Yojana The scheme is aimed at betterment of girl child in the country. It has been launched to offer a means of saving to the girl child in every family under Beti Bachao and Beti Padhao campaign. Key Features  Interest rate 7.6% is compounded annually and is payable at maturity.  Minimum Rs.250 and maximum of Rs.1,50,000 per annum  Account can be opened by the guardian in the name of the girl child below the age of 10yrs  Deposit can be made maximum up to completion of 15yrs from the date of opening.  Deposit qualify for deduction under Income Tax Act  Closure on maturity: After 21yrs from date of account opening or at the marriage of girl child after attaining the age of 18yrs. 4% Rule of Financial Freedom The Four Percent Rule is known as the percentage amount a retiree should withdraw from their retirement account per year. It is meant to be a benchmark that provides individuals with a steady set stream of income while allowing the invested balance to continue to grow throughout retirement. Ex: Corpus required: 25 times of your estimated annual expense. If your annual expense after 50 years of age is Rs.5,00,000 and you wish to take VRS, then corpus with you required is 1.25crs. Therefore invest 50% of this into fixed income and 50% into equity. You can withdraw 4% every year i.e.5 lakh. (The above works for 30 year period) Insurance and Protection Insurance is an arrangement through which one can plan for the continuation of income when certain events like disasters, illness, accident, death or old age disrupt one’s ability to earn his/her livelihood. Insurance allows you to transfer the risk of a potential loss, from you to the insurance company, in exchange for a fee or premium.  The premium or the fees is a relatively fixed and affordable amount that you pay periodically to be covered against a highly uncertain and potentially catastrophic loss and probable financial disaster. It is important to keep your insurance premium payments up-to-date to protect against unforeseen events. The amount that the insurance company pay and under what circumstances depends on initial terms of your policy. Common Insurance Policies  Personal: Life, Health, Accident cover  Property: Home, Auto, Appliances  Commercial: Agriculture, Industry, Building, Equipment  Others: Weather, Travel, Retirement Life Insurance Life insurance policies are termed as benefit policies of protection against unforeseen circumstance of death of the earning member. It is a contract providing for payment of a sum of money to the person assured or following him to the person entitled to receive the same, on happening of a certain event. Life Insurance: Term Life Insurance  In event of unfortunate demise of the policy holder, the nominees will receive the Sum Assured’ selected during the purchase of policy.  It is active for a fixed period of time therefore it is called Term Policy, policies are usually for 20, 30, till the attainment of age 99 etc  Low premium compared to other insurance policies  Does not carry any cash value  It has different meaning and purpose when term insurance is bought at different ages. Life Insurance: Endowment Policies  Provide periodic payment of premiums and a lump sum amount either in the event of death of the insured or on the date of expiry of the policy, whichever occurs earlier Whole Life Insurance This is a term insurance accompanied with a savings accumulation benefit. The policy provides death benefit till the life insured is alive. The savings get accumulated in cash value as per the investment mandate.  The premium payments in these policies are higher as compared to term insurance due to saving element  There are two variants of whole life insurance policies i.e. traditional and unit-linked, each having their unique features and benefits. Rule of Income Replacement It is assumed that life insurance should replace the lost earnings of the breadwinner. One of the simplest way to calculate your income replace value is Insurance Cover = Current Annual Income*Years left to Retirement Example: If a person is 40yrs old and his yearly income is Rs.15 lakh and if he plans to retire at the age of 60yrs, how much insurance coverage does he need? Insurance Cover = Current Annual Income*Years left to Retirement = Rs.15 lakh * 20years = Rs 3 crore Class Activity: Taking Life Insurance --- Decision Process I. Do I need a Life Insurance Cover Now? 1. I am the only earning member of my family Yes/No 2. I have at least one person financially dependent on me Yes/No II. How much Cover do I need? 1. Five times my gross annual income Rs.______ 2. Life cycle needs of my dependents Rs.______ (Children’s education, parent’s retirement etc) 3. My emergency fund amount Rs.______ (3 to 6 months of monthly income) 4. My total outstanding debt Rs.______ 5. Total estimate of my financial needs Rs.______ (1+2+3+4) 6. Total of my cash assets Rs.______ (Balance in savings account & other cash/liquid money) 7. Estimate of life insurance cover I need Rs.______ (Amount 6 – Amount 5) An Illustration: If the annual income is Rs.15,00,000 and other assumed values I. How much Cover do I need? 1. Five times my gross annual income Rs.45,00,000 2. Life cycle needs of my dependents Rs.90,00,000 (Children’s education, parent’s retirement etc) 3. My emergency fund amount Rs.3,75,000 (3 to 6 months of monthly income) 4. My total outstanding debt Rs.50,00,000 5. Total estimate of my financial needs Rs.1,88,75,000 (1+2+3+4) 6. Total of my cash assets Rs.10,00,000 (Balance in savings account & other cash/liquid money) 7. Estimate of life insurance cover I need Rs.1,78,75,000 (Amount 6 – Amount 5) Unit Linked Insurance Plans Financial planning entails two important aspects – wealth creation from money invested and security for dependents in case of an eventuality. Unit Linked Insurance Plans (ULIPs) offered by the insurance industry takes care of both.  These plans provide optimal mix of insurance and wealth creation based on investor’s risk-return profile and investment horizon.  ULIPs are a long-term investment product which provides investors the opportunity to generate wealth and an insurance cover until the product maturity date.  A portion of the premium paid by the policy holder is utilised to provide insurance coverage to the policyholder and the remaining portion is invested in equity and debt instruments.  Insurance coverage can be increased based on the investor’s preference. Meanwhile, wealth is created through investment of the investor’s money in equity and debt, again, based on the investor’s preference.  ULIPs allow for switching between funds, mitigating the risk. ULIPs offer tax benefits (under Section 80 C)  A ULIP is a life insurance policy which provides a combination of risk cover and investment  The dynamics of capital have a direct bearing on performance of ULIPs  The investment risk is generally borne by the investor Personal Accident Cover Policy  Insurance plan which provides monetary compensation in the event of bodily injuries or disability or death caused solely by accident  It is one of the popular classes of accident insurance and as a supplement to life insurance; it provides ideal protection against death or disability. Health Insurance:  Insurance coverage that covers the cost of an insured individual’s medical and surgical expenses  The insured is the owner of the health insurance policy or the person with health insurance coverage Motor Insurance  Insurance for cars, trucks, motorcycles and other road vehicles  Also called as vehicle insurance, auto insurance Group Insurance Group insurance, on the other hand, is one contract covering a group of lives. The terms of the contract of insurance cover depend upon the characteristics of the group as a whole. A master policy is issued as evidence of contract between the insurance company and another legal entity, which may be an employer, trustees, or an association.  The master policy defines the group of lives to be covered, benefit it confers, the amount of contribution to be paid and other conditions and privileges of the participating group members.  Insurance policy that covers defined group of people, for example the members of society or professional association or the employees of a particular employer.   Group insurance involves providing insurance to a group of individuals who share some common attribute, through a single policy contract.  Group insurance policies offer life insurance protection to all types of groups such as Employer-employee groups, Professionals, Cooperatives, Weaker sections of society, etc. Basic Insurance Schemes Run by Government of India PM Suraksha Bima Yojana  Provides accidental insurance cover to bank account in the age group of 18 to 70 years  A fixed annual premium is deducted from the bank account of the insured through auto- debit facility  Person would be eligible to join the scheme through one savings bank account only  Insurance covers permanent and partial disability due to accident PM Jeevan Jyoti Yojana  Provides life insurance cover to bank account holders in the age group of 18 to 50 years  A fixed annual premium is deducted from the bank account of the insured through auto- debit facility  Person would be eligible to join the scheme through one savings bank account only Ayushman Bharat  Provides healthcare facilities targeting poor, deprived rural families and identified occupational category of urban worker’s families.  There is no restriction on family size, age or gender  No money needs to be paid by the family for treatment in case of hospitalisation  All pre-existing conditions are covered from day one of the policy. The benefit cover will include pre & post hospitalisation expenses. You can go to public or empanelled private hospitals across the country and get free treatment. Ponzi scheme and Grievance Redressal Mechanism Ponzi scheme is a fraudulent investment scheme promising high rates of return to investors. The scheme generates returns for earlier investors from their own money or money paid by subsequent investors, rather than any actual profit earned. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going. Ponzi scheme usually attract new investors by offering returns that other investments cannot guarantee, in the short term, returns are either abnormally high or unusually consistent. Mass Marketing Fraud: You receive a fraudulent email that looks like it comes from a legitimate company, asking you to click on a link that brings you to a fake website. To be safe, never invest, donate or make purchases on the phone unless you can validate the company’s existence. Credit and Debit Card Fraud: Credit card and debit card fraud happen when someone uses your card, card information or personal identification number (PIN) without your permission. Never share your PIN with anyone. Investment Fraud: Someone recruits you to invest in a business or to buy merchandise to sell. You are expected to recruit new members. After a while, new people stop joining. That’s when the promoters vanish, taking your money with them. Lottery Scam: “Congratulations, You’ve won the lottery/sweepstakes/big prize!! All you have to do to claim your prize I send a small fee or tax payment” Legitimate contests don’t charge fees for you to collect your prize. Affinity Fraud: Fraudsters can win your trust more easily if you’re who share a common cause, such as a religious or social organisation. Scammers may ask investors to keep the matter quiet. How to identify a Ponzi scheme? 1. High returns with little or no risk: Higher the return, higher is the risk involved. Be highly suspicious of any guaranteed high return investment opportunity. 2. Overly consistent returns: Investments tend to go up and down over time. Be sceptical about an investment that regularly gives positive returns regardless of overall market conditions. 3. Unregistered investments: Ponzi schemes typically involve investment schemes that are not registered with the regulators or any government agency for their activity. 4. Unlicensed sellers: Any investment scheme requires to be registered with concerned authority and State securities laws require investment professionals and firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms. 5. Non transparent disclosure: Avoid investments if you don’t understand them or can’t get complete information about them. Account statement errors may be a sign that funds are not being invested as promised. 6. Difficulty in receiving payments: Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying invested. Protection from Fraud Recently, in India, many of the investors lost money because of the operation of unregistered entities offering investment schemes. The Sharada Chit Fund Scam in West Bengal and the illeagal mobilisation of funds by Sahara firms are relevant examples. One needs to caution himself or herself about the operation of fraudulent agencies luring investors by offering higher returns within short period. You can keep your money safe by being aware of these risks. 1. Never fall for a deal that is too good to be true. If you do not understand what the product is all about and how your money will be invested, do not buy. 2. Do not invest in unfamiliar products just because the returns appeals to you. Do thorough research on the company’s background and financial performance. Weigh your risk appetite against the products that you are investing. Grievance Redressal – Securities Market Grievance Redressal – Banking Industry Grievance Redressal – Insurance Industry Grievance Redressal – Pension Industry Category of Activity Concerned Regulator/Authority Mobilisation of Deposits by NBFC Reserve Bank of India Nidhi or mutual benefit society Reserve Bank of India (RBI) Gold Saving schemes launched by jewellers Reserve Bank of India/ Ministry of Corporate Affairs Deposits accepted by Companies Ministry of Corporate Affairs Schemes offered by Cooperative Societies State Governments Chit Fund business State Governments Multi-level marketing/ Pyramid Marketing State Governments schemes Contract of Insurance Insurance Regulatory and Development Authority of India (IRDAI) Pension Schemes Pension Fund Regulatory and Development Authority (PFRDA) Grievance against companies, intermediaries in Securities and Exchange Board of India securities market etc (SEBI)