Before committing money to any investment product, the first step should always be ensuring safety. We invest to grow our money, but protecting what we already have is equally important. Losing a significant amount of money can derail our financial plans and can be difficult to recover from.
Warren Buffett once said,
“A long string of impressive numbers multiplied by a single zero always equals zero.”
One bad decision can wipe out years of hard-earned savings. So, safety can’t be ignored.
Ensuring investment safety has two aspects. First is legitimacy, confirming that the investment is not a scam. And second is capital preservation, evaluating all potential risks in the investment and any possibility of losing money in adverse scenario.
Is this a scam?
Internet is filled with crooks who are trying their best to steal your money. While scammers come up with new methods every day, they usually share some common warning signs.
Urgency is the most common red flag. Messages like “limited allocation”, “offer valid only today”, “act fast” are designed to rush you into action before you can think rationally. Genuine investments allow you sufficient time to study, ask questions and decide.
Unsolicited messages deserve equal caution. If you receive stock tips or high-return offers from unknown people on WhatsApp or Telegram, be skeptical. Regulated institutions and successful investors do not randomly approach strangers with exclusive opportunities. Ask yourself why someone would share a life-changing investment idea with a stranger?
As Norman Ralph Augustine has put it, “If stock market experts were so expert, they would be buying stocks, not selling advice.”
People who truly have a lucrative trading strategy will try to keep it secret to protect their edge, not run paid advertisements on YouTube. The flashy lifestyles, and profit screenshots seen in online ads are often staged. Real wealth is often silent.
Payment instructions also reveal a lot. If you are asked to transfer money to a personal bank account, pause. Legitimate entities use proper corporate or escrow accounts, supported by clear documentation.
Another simple check is paperwork. Genuine investment products always come with SEBI approved documents such as offer document or prospectus. If documents are missing, delayed, labelled confidential, or dismissed as unnecessary, that is a big warning.
Is there a possibility of permanent loss of capital?
Once you are confident that the investment is genuine, the next step is understanding what you are buying and the risks involved. You should know how your money will be used and how the investment plans to earn returns.
Consider a fixed deposit. A bank takes your deposit, lends it to borrowers, earns interest, keeps a margin for costs and profits, and pays you a portion of that interest.
With equity mutual funds, your money is invested in shares of companies. When share prices of those companies rise over time, the value of your investment increases.
Compare this with pyramid schemes. These schemes have no real business. Money comes from new members, and older ones are paid using fresh inflows. Eventually, new entrants slow down, the structure collapses and most people lose their money.
A simple test is if you cannot explain in simple words how the investment makes money, you should not invest in it. Complexity often conceals risks, catching us off-guard.
One final check is to compare promised returns with realistic benchmarks. In India, long-term government bonds offer 6-7% interest rate and are considered risk-free. Equity markets, represented by indices like the Nifty 50, have delivered roughly 11 to 13% gain over long term. These can be considered as base expectations.
When someone promises much higher returns, especially in products that claim to be safe, caution is needed. For example, if fixed deposits from established banks offer 6 to 7% interest, and business loans are available at 9 to 11%, why would someone pay 15% interest? Mostly because they can’t get a loan from regular banks. If banks are unwilling to lend to them, it is worth asking why you should take that risk.
Promises of more than 15-20% returns on a consistent basis fall into a danger zone. Equity markets can deliver high returns in some years, but sustaining high returns year after year is difficult. Even skilled investment managers experience ups and downs. Honest professionals never guarantee high returns in advance.
Safety does not mean avoiding all ups and downs. It means avoiding permanent loss of capital due to fraud, poor structure, or unrealistic expectations. Returns matter, but only if you stay in the game for long-term.
VeridianFin Services 
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