The Reserve Bank of India on Thursday cautioned the public against Multi-level Marketing (MLM) activities so that investors do not fall prey to unscrupulous entities.
Explaining the functioning of these entities, the Reserve Bank stated that MLM/Chain Marketing/Pyramid Structure schemes promise easy or quick money upon enrolment of members.
Income under such schemes majorly comes from enrolling more and more members from whom hefty subscription fees are taken rather than from the sale of products they offer.
It is incumbent upon all members to enroll more members, as a portion of the subscription amounts so collected is distributed among the members at the top of the pyramid. Any break in the chain leads to the collapse of the pyramid, and the members lower down in the pyramid are the ones that are affected the most.
The Reserve Bank has advised that members of public should not to be tempted by promises of high returns offered by entities running Multi-level Marketing/Chain Marketing/Pyramid Structure Schemes.
The Reserve Bank has reiterated that falling prey to such offers can result in direct financial losses and they, in their own interest, should refrain from responding to such offers in any manner, the RBI said in a circular on Thursday.
The Reserve Bank has also said that acceptance of money under Multi-level Marketing/Pyramid structures is a cognizable offence under the Prize Chit and Money Circulation Act.