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What are Ponzi Schemes?


Ponzi schemes are fradulent investment schemes that operate in the large financial world. Named after an Italian Charles Ponzi who moved to the US and sought an arbitrage opportunity in coupons and purchased postal stamps from Italian market at a lower price and sold in the US at a higher price.


Seeking the profit earning, many others with limited or no understanding made losses.

What are Ponzi Schemes?

How such schemes operate?

In general, ponzi schemes that pool money from different investor class, instead of providing returns to the investors from the profits made by the organization or individual running such a scheme provide money from either new investment amount collected or existing capital of the company.

For instance, an investor's sum with investment in such a scheme is used to pay another investor and a day comes when after gaining sufficient customer base, operator of a Ponzi scheme runs away by paying only the first few set of investors.

Such schemes thrive until the time investment outlook into the scheme remains positive and as and when new cash flow into the scheme stops, operator of the scheme fails to pay assured returns to existing investors.


The high rate of return on the investment scheme gathers the interest of investor who seeking higher profits deploy their hard-earned money without sufficient examination.

SEBI to curb Ponzi schemes

With an increase in the operation of such schemes by different entities, Securities and Exchange Board of India has been granted additional powers for curbing such schemes.

The collection of any amount from public in excess of Rs. 100 crore will be monitored by SEBI and the proposal of inclusion of such schemes in the collective investment scheme category was made.

Further, as per media reports, penalty to companies running such schemes has been increased to three times the profit made from such a scheme as against the prior sum of Rs. 1 crore.

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