Preventive tips for citizens before investing in Non-banking Financial Establishments

  • Go through the information disclosed by the company in its Prospectus/Brochure and pay special attention before investment to the following points:
  •  Risk factors associated with the investment
  •  Outstanding litigations and defaults, if any
  • Financial position of the company Objectives of raising money
  •  Company history Background of the promoters
  •  Read and properly understand the risks associated with investing in deposits and other financial instruments of little known companies before undertaking any transactions.
  •  Assess the risk-return profile of the investment as well as the liquidity and safety aspects before making your investment decision.
  •  Ensure that the companies into which you are investing in have all requisite approvals and authorizations from RBI, Registrar of Companies, IRDA etc and have a valid registration certificate.
  • Familiarize yourself with the rules, regulations and circulars issued by the RBI and other regulatory agencies before carrying out any transactions.
  •  Read the offer document carefully before investing.
  •  Note that past performance of a scheme or a fund is not indicative of the scheme’s or the fund’s future performance. Past performance of a scheme may or may not be sustained in future.
  •  Contact Complaint Officer mentioned in the letter of offer in case of any grievance against the company.
  • Contact the Registrar of Companies* in case you feel that provisions of The Companies Act have been violated.
  • Find out how the company is going to utilize the money raised through various instruments and check the viability of the project.
  •  Check and verify the background/expertise of the promoters.
  • Ensure that the assets shown in the books of the company have clear and marketable title.
  •  Ensure that the company into which you are investing has the necessary infrastructure to carry out the activities mentioned in the scheme.
  •  Don’t fall prey to market rumors and promises of unrealistic returns. Try to find out how the company proposes to generate these returns on invested capital.
  •  Don’t go by any implicit/explicit assurances made by the company inviting deposits which are too good to be true.
  • Don’t invest in a scheme just because somebody is offering you a commission or other incentives, gifts etc.
  •  Don’t get carried away by luring advertisements.
  •  Don’t start investing in debt instruments** of companies unless you have understood the Risk Disclosure Documents*** as well as mechanism of grievance redressal in case of impending defaults.

* Registrar of Companies-- the person charged with the duty of holding and registering the official startup and constitutional documents of all registered companies.

** Debt instruments--- A paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, certificates, mortgages, leases or other agreements between a lender and a borrower.

*** Risk Disclosure Documents-- A document outlining the risks involved in futures trading, such as that one may lose his/her entire investment, that it may be impossible to liquidate a position under certain market conditions, that spread positions may not be less risky than simple long or short positions, that the use of leverage can lead to large losses, that stop-loss orders may not limit one's losses, and that managed commodity accounts are subject to substantial management and advisory charges.