A Ponzi pyramid scheme ( ponzi scheme and pyramid scheme ) is an illegal business model where people are invited to invest their money. In this, a large level of risk is taken to take money from new members. In such schemes, earlier members are promised higher returns when they invite new members and encourage them to take money from them for their investments. In this way, the number of members increases and their income also increases


    Here as an example, a person invests Rs.100,000 in a Ponzi scheme. He is promised that he will double that investment if he invites even 10 people and they also put in Rs.100,000, taking his income to around Rs.20 lakhs. In this way, this person will earn a huge amount by calling more new members.


    Depositing members also have the advantage of being first in line once the entry for new members is barred. In this way, they get huge amounts of money while duping new members who cannot provide real money to the first members. This vicious cycle continues, and on failure to sell the product or offer the services, the members get no returns.


    If you have doubts about any organization or product, you can check the website of that organization or product, or get more information from various reference books or internet sources.


    Difference Between Direct Selling and Ponzi Pyramid Scheme


    Direct selling and the Ponzi pyramid scheme are both business models in which people have to sell products or services. However, there is a main difference between these two.




    Direct selling


    In the direct selling business model, products and services created by a brand are sold directly to end consumers. This method works under network marketing, where the salespeople sell the products directly to the end consumers and earn their commission. This model allows people to sell products directly so that they can increase their income.


    Ponzi pyramid scheme


    The Ponzi pyramid scheme business model is also based on network marketing, but it is an illegal business model. In this, people are called and asked to take money from them, which is called "Ponzi". The amount of money is deposited and they are also given benefits from time to time. Thus, those who become the first guest start earning money. This is illegal because the structure resembles a Ponzi pyramid, where people at the top make the most and people at the bottom lose. 



    Therefore, direct selling is a legitimate and honest business model that gives people an opportunity to sell products and earn, whereas the Ponzi pyramid scheme is an illegal business model that loots people's money.

    Ponzi pyramid schemes are illegal in India and the Government of India is fighting a tough battle against such schemes. The government has warned all banks, organizations, institutions, and individuals to stay away from such schemes so that people can avoid being cheated.


    Government of India's Policy on the Ponzi Pyramid Schemes 


    Funds Regulatory Corporation of India has released the list of illegal money-depositing companies that offer such schemes to people by motivating them with the feeling of profit. Crores of rupees have been deposited with the companies in this list. This list is reviewed by the corporation for everyone's safety.


    The government has decided to amend the relevant Acts like Investment Promotion Act, Companies Act, etc. to maintain strictness against such schemes. The government has also provided answers to several questions to promote investment options for the people to ensure safe investment.

    In India, Ponzi schemes are banned under the Banning of Unregulated Deposit Schemes Act, 2019.


    The Banning of Unregulated Deposit Schemes Act,2019



    Some tips to avoid the Ponzi pyramid scheme


    1.  Choose a reputable investment option to keep your money safe.
    2.  Collect as much information as possible before considering your investment. Get complete information about any investment and understand it.
    3.  Do an authorized assessment of your financial position and investment eligibility before making any investment.
    4.  Keep in mind that most Ponzi pyramid schemes are unregulated, so contact a reputable investment firm about your investment.
    5.  Make sure you do research about the respective investment options before investing.



    If you've already invested in a Ponzi pyramid scheme, double-check your information and possibly take some action to save your money. For more information regarding your investments, contact your financial advisor or RSO.



    Therefore, the policy of the Government of India is against illegal Ponzi pyramid schemes and the government has decided to implement useful policies to keep the people in cognizance and protect them.



    Conclusion


     The Ponzi pyramid scheme is undoubtedly illegal and deceptive. It operates on the premise of promising high returns to investors while relying solely on funds from new participants. This unsustainable model inevitably collapses, causing severe financial losses for unsuspecting victims. Authorities worldwide actively combat such schemes to protect individuals and maintain the integrity of financial markets. Vigilance and awareness are crucial in preventing oneself from falling prey to these illicit practices.


    Some Questions (FAQs) You May Have in Your Mind



    1. What is the Ponzi pyramid scheme? 

       

        A Ponzi pyramid is an illegal financial scheme in which people are assured that they will get high returns, but the reality is that the money only comes from new members joining.



    2 . What is the purpose of the Ponzi pyramid scheme? 

       

       The objective of a Ponzi pyramid is to recruit new members and pay out money to old members using the money they have already deposited.



    3. How does the Ponzi pyramid scheme work? 

       

       In the Ponzi pyramid business scheme, first the members have to make a deposit. They are promised high returns which are not realistic. The money they collect is used to pay old members.