Most of the people around the world lost their savings by investing in fraud schemes which technically known as ‘Pyramid Schemes’. The theoretical concept of ‘Pyramid Scheme’ is not so complex but it is presented to potential investors in camouflaged way. To make yourself aware about these trapping investment fellows and to minimize risks, it is necessary to have complete knowledge on this issue.

Basic Concept:

Here is the basic concept which shows that how this ‘Pyramid Scheme’ works:

• The first person, who initiates the scheme, hires another person.
• The second one has to pay (like investment) $100 to the first one.
• To recover his $100, the second person has to recruit more persons under him/her.
• The new recruits have also need to invest $100 and pay to their superiors.
• By doing so, the first person, if accommodates 10 persons (with their $100 investment), would earn $900 with a little investment of $100 in the start.
• The 10 more people are ranked as recruiter and each of them have to register further 10 persons. Resultantly, it gives a boost of 100 more working hands to the team.

Game does not stop here!! Each of these 100 entrants would have to ‘invest’ $100 in their superiors (who appointed them). Every investor (recruiter) earns a profit by deducting his $100 investment (that he paid to his superior upon recruitment) from his earned revenues from his junior chain members. This process of recruitment goes on and on like a pyramid.

Sustainability:

The people in the dream of earning a huge profit forget the sustainability issue of such type of schemes. They do not consider that there would definitely be an end if whole the world joins this pyramid. They falsely believe that they are generating money out of money by investing just $100 once in the beginning.

The Worst Investors:

The worst investors are at the downside somewhere in the hierarchy as they unable to recruit further due to saturation in the pyramid. Hence, their investments remain block. As per estimate 90% of the investors lose their money in such schemes/ businesses. Therefore, most of the countries including US do not support these fraudulent schemes.

Hidden Attractions:

As these schemes are illegal in many countries (especially in US), they use to do business in disguised way. For instance, in investment clubs, they would attract by giving loans and gifts (tax-free up to $10,000 in the US) to recruiters with a view to ‘buy’ more recruiters for further investment. These tactics are all pyramid sort of schemes.

Precautions:

After reading the above few lines it would be easy to understand the pros and cons of these fraudulent schemes. These are only the glimpses from many complex tools of attracting the innocent people.

Before going to invest in any schemes, it is obligatory to investigate from some professional about the following:

• Who will be investing it?
• What is the rate of return?
• How will this money be invested?

Always be cautious when someone offers you to invest and get returns over night without any risk. This would definitely be a ‘Pyramid Scheme’ and you must avoid it.

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