How Do I Recognize a Scam?


When you start realizing the importance of investing, you are faced with some choices based on the amount of fund available. The purpose of investing is to earn profits in the future, or earn a regular income from initial funds invested today.

Several people want to maximize their investment return by taking investment that offers high return – although not all of them understand that the risks are also high. This is seen as an “opportunity” by those who want to scam people.

Scams occur when investment capital invested does not provide gain or regular income, but loss of some or all of the initial investment funds, because the plan is intentionally used to deceive or mislead investors.

Characteristics of Investment Scams

Although we know that investing can be risky, we need to protect ourselves from the “fake promises” offered by someone. Any business would have its ups and downs, so there is no guarantee of profits, especially in the long term and for many investors.

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Steady interest or return are usually only granted by savings or time deposit. The Insurance Deposit Agency (LPS) only guarantees savings, giro, and time deposit up to Rp 2 billion per customer per bank. Beware of investment offers with 'promise' of certain profit sharing.

Some other characteristics you need to watch out for:

  • Not registered as an investment company
  • Offer a high return in the short term
  • Asking a quick decision, e.g. during an investment seminar
  • Require members to pay if they want to join, then recruit new members
  • Doesn’t provide complete information

Several Types of Investment Scams

1. Pyramid Scheme

Investment scam using the pyramid scheme is based on hierarchy, initiated by one or a few people who will be at the top of the pyramid.

This scheme is usually based on money (money game). No profitable business, products sold, services rendered or investments performed.Members benefit from recruiting new members who are required to pay a sum of money to be able to become a member.

This is a scam, because a scheme like this cannot last forever. There is time that recruitment will be saturated and the new members will lose their investment. An example that can be easily found is a multi-level marketing company which sells expensive products without clear benefits.

2. Ponzi Scheme

In a Ponzi scheme, investors are typically promised high profit with low risk.Just like a pyramid system, return for new investors is given by money paid by old investors. The difference is that the creator of the system will get the money from all investors and distribute it.

In the end, this type of business model would collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.

3. High Yield Investment (HYI)

This scheme offers a high or very high return of the capital invested.Sometimes the investments offered really exists, but the business cannot afford to pay the promised rate of return to all investors.Usually this investment scheme is also a Ponzi scheme, and the money will be controlled by its founder.

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