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How emotional investing can lead to fraud?

IamCheated.com Research Team | October 21, 2019  8:50:pm

How emotional investing can lead to fraud?

Most of the frauds that take place these days are due to emotions. Fraudsters cheat people using psychological tools. They understand the logical thinking of people and catch them unawares. So in case you fall in such situations, don't let your emotions get the better of you. In this blog, we will discuss the emotional triggers used by fraudsters to cheat you of your hard-earned money.

See Also: How to Stay Safe from Fake Investment Advisors?

1. Affinity fraud

In the case of this fraud, victims are normally members of some community or group. Fraudsters somehow get into these groups and offer investment opportunity to members saying it offers high returns. To make their plan work, they convince the leader or an influential member of the group. Here emotional connect is used to gain the victims' trust. Convincing one member of the group is enough as others are going to follow and get duped.

To avoid this kind of fraud you must always do your research on the company where you are investing your money. Don't invest your money just because the person who suggested the investment is very close to you.

2. Internet investing

Fraudsters send emails to people, claiming to be from a trustworthy organization like a famous private bank, insurance or mutual fund company. Emails suggest the recipient transfer money into a better account, fund or policy.  To complete the transaction, they will be asked to deposit a certain amount of money as an advance fee. The email will be designed in a very formal way to make people trust them. It might even include the name of a senior person.

To avoid this kind of fraud, you must never respond to unsolicited emails offering investment options which are too good to be true. If you are interested in the scheme mentioned in the email, you must check its authenticity by calling up the registered number of the bank or insurance company. Never send money to the bank account of an unknown person.

3. Mis-selling

Mis-selling has become very common these days. Normally, banks mis-sell life insurance to innocent customers, especially senior citizens, who want to invest their life’s earnings. Banks sell life insurance in the form of endowment and Ulips; to people who don't require them.  Finally, investors end up getting low returns on their investment.  Here the emotions like greed or fear are used while mis-selling the products. 

You must not buy an investment product sold by a bank employee. Avoid taking financial advice from relatives, friends, and colleagues. Instead, you have to take the advice from a good financial advisor. 

4. Ponzi schemes

Ponzi schemes are one of the oldest investment scams. These schemes offer high returns and investors must recruit new investors to keep the plan operational. If the recruitment reduces, the dividends fall and investors lose money. Many people invest in this scheme thinking they can make easy money. You should never invest in the schemes which require you to enlist other members to earn a profit.

See Also: Alerts by NSE for investors

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