Govt working to clamp down on dubious ponzi schemes, says FM

Source: The post is based on the article “Govt working to clamp down on dubious ponzi schemes, says FM” published in The Hindu on 24th April 2023

What is the News?

The Finance Minister has said that the central government is taking steps to clamp down on Ponzi apps to protect investors’ hard-earned money.

What are Ponzi Schemes?

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. 

Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. 

But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

Ponzi schemes are named after Charles Ponzi, who duped investors in the 1920s with a postage stamp speculation scheme.

In India, Ponzi schemes are banned under the Banning of Unregulated Deposit Schemes Act, 2019.