YES! – YOU CAN WITHDRAW YOUR EPF WITHOUT EMPLOYER SIGNATURE

  Do you know how to withdraw your EPF without Employer Signature ? Do you think if its possible at all ? Is your previous employer not signing your EPF Withdrawal documents? Have you left your company long back and now you can not take your past employer signatures ? Or is your EPF company stuck because your employer is not supporting you or helping you in withdrawal procedure ? Or it might happen that your employer relations with you mess up for some reason and now they are not ready to cooperate in the EPF withdrawal procedure and threatening you? Here are 2 real life examples of these kind of situation

Case 1 : Priyanka was also stuck with a company which was shut down and her PF was stuck

The last company i was working with has been shut down. Now I need to withdraw my EPF, however I am not getting any help from the company. I have tried to contact the GM – HR and the CA but no response. As the sum is huge, I am worried if I will be able to withdraw the amount without company’s approval or authorized signature. The full and final settlement has been closed and relieving letter has been issued by the company. Please advise how should i go about in this case.

Case 2 : Ramz was also facing similar issue but here employer was not supporting the employee for EPF withdrawal

One of my friend was in a similar situation few months back. I have pay slip but no relieving letter. When contacted with the finance dept, I was told that I cannot get the epf amount as I have not got the relieving letter. The amount will not be released by them even though an epf amount is mentioned in pay slip. He was asked to pay the amount for serving period of two months and then get relieving certificate and later only will they release the funds for epf account.

Now the question. Can one withdraw his EPF without the support of his past employer signatures or support ? Yes ! - There is a solution! .

Today we will discuss, how you can withdraw your Employee Provident Fund money without your past employer’s help. A lot of people feel that it’s not possible without employer involvement, but it’s not true! Let me start by sharing a bit about this.

Employer can not control EPF money

Each month employer takes the EPF part, out of your salary and along with their contribution, deposit it into your EPF account with the EPFO organisation. Once they deposit it with EPF office, then it’s just your money and no one else’s. Your employer can not control it. However note, that your employer’s signatures are required on the EPF withdrawal form, to certify that you are not employed with them anymore and now you can withdraw the EPF.

A lot of people leave their jobs without serving the notice period or because of some other issue and employers do not help them to claim their Provident Fund money. Here is one instance on our Jagoinvestor Forum

I worked in a company in 2009 for few months. I had some issues with them and resigned from that company. I did not get any relieving order. All I have is my salary slip which has PF account no. Is it possible to get back the PF amount without the permission/notice to the previous employer which I worked ?

3 steps to withdraw your EPF without Employer Signature

Here are 3 steps you need to do to successfully withdraw your EPF without previous employer signatures.

Step 1

First download and fill up Form 19 (for EPF withdrawal) and  Form 10C (for EPS Withdrawal)

Step 2

Get it attested by any one of the following

• Manager of a bank (PSU preferred)
• By any gazetted officer.
• Magistrate / Post / Sub Post Master / Notary

Step 3

Write down a letter addressing the regional PF commissioner, stating the reason why you have to get it attested and how you are facing issues with your employer. In case you have any proof of  unsupportive behaviour from your employer, better attach it. (This step is optional, and not mandatory)

Step 4

If you are unemployed, you will have to make an affidavit that proves that you are unemployed. Download this Affidavit Sample and get it printed on a Rs. 100 stamp paper with a notary or any gazetted officer signature on it (This Affidavit is part of our Jagoinvestor Wealth Club) . This is required because you need to be unemployed if you want to withdraw your EPF . If you are employed, you can transfer your EPF to your new employer.

Step 5

Send these forms to your regional EPF office and wait for next few months for some kind of action.

Step 6

Once your application is processed, the EPF withdrawal request will be honoured and you will be paid. If you still don’t see any action or response, then its time to File an RTI application to EPF Department for finding out the exact Status.

Legal Action against your past employer

Note that Employee provident fund money is totally yours and no matter what the situation, your past employer should be helping you in withdrawing it. It can be some issue your employer or you might have.., your employer can not say that they will not give signatures and create issues in your EPF Withdrawal.

If that’s the case, it might be time to teach them a lesson.

If you are 100% sure that you are correct and it’s a case of harassment, just collect all the documents which proves the harassment and then inform your regional Provided Fund officer about this. He will carry out an enquiry, contact the employer and if he finds them guilty, there can be legal action against the company and might even amount to imprisonment. It’s the Employer’s duty to keep records as per the law and also maintain the terms and conditions, failing which employer can get a notice under a section 7A, which lays the guidelines of strict actions against the employer. I got this from one of the RTI related websites 

Normally, the EPFO which maintained your EPF account should have settled the claim based on the signature of the Bank Manager since you find it difficult to get the form attested by your previous employer. They should not have sent it back to you telling to get the signature of the previous employer. The fact appears to be that the employer is not willing to sign the form for some reason or the other. (I presume the establishment is not closed but is still working). It is the duty of the employer to sign the settlement form. If he fails to do so the Regional Provident Fund Commissioner (RPFC) concerned can take action against him. You can make a complaint to the RPFC pointing this out and urging him to either settle the claim as it is or to get the claim signed by the employer and in case the employer declines to sign to take appropriate action against him instead of harassing you by not settling the claim. Please send this complaint by registered post and keep copy. After about a month if no action is taken file an application under RTI and ask what action has been taken on your complaint,people responsible for not taking action etc. Your claim will automatically be settled.

Conclusion

It’s possible to withdraw your EPF money without the help of your past employer. You just need to know the right steps and should also have the energy and motivation to follow up on the matter. Let us know what did you learn out of this article. Do you think this is something useful for you? From this article, did you understand properly how you can withdraw your EPF without Employer Signature ?

Source: by manish chauhan www.jagoinvestor.com

Don’t fall for warranties offered by builders Property developers have started offering warranties, but these may not be worth the premium you pay.

AMIT SHANBAUG 

Many of the top property developers in metro cities like Mumbai and Delhi have come out with a new marketing strategy to lure potential buyers. They are offering warranties on the houses they sell, similar to those offered by manufacturers of electronic appliances like TVs and refrigerators. The warranty period ranges from 1-3 years on all electronic appliances in a fully-furnished apartment, to as high as 10 years for waterproofing of flats. The Maharashtra Chamber of Housing and Industry claims that nearly 80% of its members are offering such guarantees across the country. 

 

    However, is this warranty a convincing reason to buy a flat at a premium? Most real estate experts don’t believe so. Here’s why. 

 

It’s the appliances, not apartments
Most warranties being advertised by developers are for the appliances that come with a semi- or fully-furnished flat, not much on the construction-related aspects of the house. While offering appliances with apartments is nothing new, the only difference is that a few builders have started handing out the warranty cards to buyers when they take possession of the house. “The developer purchases these products from various companies, which offer their warranties. The builder merely passes them on to the customer as his own,” says Pankaj Kapoor, managing director of Liases Foras, a real estate research firm. 

 

    A significant construction-related guarantee some developers have begun to offer is on the paint job. However, many reputed paint companies already offer a warranty of 5-7 years, subject to a minimum quantity of paint purchased by the builder. The warranty includes shade fading, growth of fungus and algae on walls, flaking and peeling of paint. The company maintains records of the customer warranty electronically and issues a warranty identification number. 

 

    Even if the builder offers other construction-related guarantees, say, for waterproofing, these come with the building, not individual apartments. “In the case of warranties on construction materials, the buyer should ask for relevant documents from the developer and scrutinise the level of accountability implied,” says Om Ahuja, CEO, residential services, Jones Lang LaSalle India. 

 

No extra cost for developer   

The builder is only offering convenience in terms of providing access to guarantee papers. You are anyway entitled to warranties on products that come with the house, such as electrical wiring, switchboards, appliances like CFLs and ceiling fans, kitchen chimneys, exhaust fans and bathroom fittings like branded taps. 

 

    So, is offering warranties just a gimmick? The builders want you to believe otherwise. “Most top developers want to protect their reputation, so they opt for branded material. The guarantees are a genuine effort by builders, not a gimmick to sell their projects,” says Boman Rustom Irani, chairman & managing director of Rustomjee Group. 

 

    However, the fact is that when a home owner wants to use the warranty, he will have to approach the manufacturers. The developer could wash his hands off any defects later. The only solace for buyers is
    that the guarantee may mean it is a
    better product than an unbranded one. “Appliances covered by manufacturer warranties tend to be of a better quality,” says Ahuja.  

Cash discount is better
While most such warranties are offered for fully furnished premium projects and projected as being free with the apartment, if the builder offers these at a premium, ask for a cash discount instead. This may work to your advantage in two ways: you get to buy what you like, even at a lesser cost, and something that suits your needs. 

 

    Besides, the builder has low incentive to buy the most energy-efficient appliances since it is you who will pay the bills, not him. The motivation for the builder is minimising investments and maximising returns, and he is more likely to choose not-so-efficient appliance at a lower cost rather than an expensive five-star one. The large number of investors today is also a reason for minimising the cost on appliances. “When an apartment is being bought just as an investment or to rent it, the owner would want the builder to install cheaper appliances. This is because the maintenance cost is minimal if the flat is locked up, or the tenant will pay the charges,” says a Delhibased real estate expert.
Before you buy 

Another important factor to be kept in mind is whether the construction is suitable for all the fancy appliances on offer. For instance, a fully air-conditioned apartment requires proper sealing of doors and windows and your electricity bill may go up if this is not done. Similarly, if the chimney in the modular kitchen is not powerful enough, you will have to spend more on getting it cleaned more frequently.  

 

Source: times of India 26/11/2012

No investment is risk-free

 By Uma Shashikant

Last week an 80-year old woman wrote to me about her investments. She had been receiving a pension, but hardly used it as she was staying with her son, and had accumulated 10 lakh. The relationship manager of her bank has been trying to persuade her to invest the amount in a fixed deposit of a company that was offering 11.5% per annum. She had read about the impact of inflation on investments and asked me if she should choose the product since the rate seemed attractive. The company in question is a multi-business venture going through a bad patch in several of its core businesses. Her mail was a sharp reminder of the prevailing mis-selling in the markets and the vulnerability of investors, who do not see risk as clearly as returns. 

    There is no investment product without risk. To invest is to allow someone else to use your money; the manner in which the money will be used and the return it will generate is always subject to the unknown. It is the degree and nature of risk that varies. Think of risk as using a road. If someone told you that you could step on to a busy road with eyes closed, you would consider it insane. To invest without considering risk is similar. It is not as if we avoid the roads from fear of accidents. We are aware of the risks and act accordingly. Unfortunately, accidents continue to happen, but we do not wish away the risk, or avoid the roads altogether for the fear of being hit. To invest is to consider the risks and act accordingly. 

    What are the risks that my reader did not consider? She saw the product as protecting her from inflation since the rate offered was high. An investment that grows in value, such as equity or property, inherently offers protection against inflation since the price moves up over time. An incomegenerating investment, such as a deposit, is unlikely to offer this protection across economic cycles. Interest rate is a compensation for inflation and the rates on such products tend to align with the expectation about inflation. This means that interest rates will be cyclical, moving up and down in line with the likely inflation. Therefore, high interest rates are offered when inflation is expected to be high, but during such times the products are offered for shorter maturities. No borrower, unless desperate, would lock himself into a high rate for a long period, knowing fully well that the interest rates are cyclical and would fall in the future. My 80-year-old investor is not looking at the next 20 years, but when her deposit matures in three years, she is likely to get an interest rate depending on the situation at the time. A fixed income product, such as a deposit, will, at best, help stay in line with inflation. It won’t help her beat it. High rates during high inflation is a tactical opportunity, at best. 

    It is not uncommon to find products with high interest rates during times of high inflation. However, care should be taken to ask why the rate being offered is high. Borrowers may be stressed; they could be in dire need of money and willing to pay a higher rate. A company deposit is an unsecured borrowing. This means the investor has no recourse to assets of the borrower if there is a default. That is the risk the investor is taking. Many would argue, rightly, that all companies do not default and that there is a credit rating for the deposit. Default risk is not just about the company failing to repay the deposit. If the situation gets worse for the company, its credit rating can drop. When a company is rated AA at the time of an issue, and is dropped at A- before the deposit matures, the risk for the investor has increased. However, the interest rate is the old one and it does not capture the new risk. 

    If the investor finds that the risks have gone up and wants to sell her investment, she cannot do so. The company deposit is not liquid and she must wait for its maturity. She will not be able to access the deposit if she needs money before its maturity. Her need is to be able to claim her investments if she were to fall ill and needed money for her medical expenses. 

    She may be able to take a loan against the deposit, but it would not serve her purpose since she has no income to repay the loan, and having spent the money on her medical treatment, she may have to end up forfeiting the deposit she offered as collateral. 

    The company deposit that my reader is considering has a high reinvestment risk—it is a shortterm product and she cannot assume that she will get the same rate when it matures. It has a high default risk—the credit rating of the deposit may fall even as she is holding it, and in the worst case, it may default. It has a high liquidity risk—her money is locked in with no liquidity. The 11.5% return comes with these risks, and the question she should ask is whether the product is suitable for her needs. 

    If her primary need is to access the money when needed, she should choose a safer and more liquid investment. Depositing the money with her bank and breaking her deposit when she needs the money might serve her needs well. She has hardly used her pension and the accumulated 10 lakh indicates that she has few needs. Chasing a higher return is not even a critical need in her case, and it is not worth taking the risk of an unsecured deposit with the company whose financial position is weak. 

    If she is not in a hurry to reach her destination, she is better off walking on the pavement carefully, instead of jumping on to the footboard of a crowded bus. 

Source: timesofindia.com 22/10/12

DID YOU LIE WHILE BUYING INSURANCE?

BY BABAR ZAIDI 

 He is young, earns well and has just become a father. Just the kind of customer insurance companies want to target. Yet, when Harshad Doshi applied for a policy, his request was turned down. “When I disclosed that I had kidney stones, they refused to insure me,” says the Mumbai-based manager in a financial services firm. 

   Despite the condition, Doshi (see picture) has managed to buy a 2 crore life cover for himself—not without putting his ailment on record, and disclosing that he had been denied life insurance by another company. “I made full disclosures because I didn’t want to leave anything to chance when it came to the claim settlement,” he says. Doshi had expected a higher premium, but he was in for a pleasant surprise. The final premium was the same as that charged by the company for a person with normal health. He’s paying 23,740 per year for the Click2Protect online term plan from HDFC Life. 

    Not many insurance buyers are as transparent as Doshi. A sizeable percentage prefers to keep its medical problems under wraps. For some, it’s tempting to conceal facts that are likely to push up their premium, or deny them an insurance cover altogether. For others, ignorance is bliss because they let their agents fill up the details. Almost 22% of the respondents to an online survey conducted by Economictimes.com, last week, said they would either not mention their illness or seek the agent’s help in concealing it to keep the premium low. Another 8% said they would not disclose the full extent of the problem, and water it down. 

    Withholding crucial information on the state of your health from your insurance company can have serious ramifications. If an insurance company finds out that a policyholder has concealed information that affects the risk to his life, out goes the claim. Don’t expect a company to be lenient because the policyholder’s family is without support. Every year, about 2% of the claims received by life insurance firms end up in the trash can. Some are crude attempts to defraud, while others display greater finesse. Yet, policyholders leave behind enough loose ends for companies to reject the claims. In 2010-11, nearly 17,500 death claims were rejected (see graphic). An equal number of claims is under investigation and some of these might also get rejected. This is just the tip of the iceberg. As our survey shows, up to 30% of insurance buyers submit incorrect information that could lead to rejection of claims.
Smoking signals 

One of the most common lies in a life insurance application is the disclosure of tobacco use. The premium shoots up by 25-50% if one consumes tobacco in any form. So, it’s quite tempting to say that one doesn’t smoke or chew gutkato keep it low. However, one should not be lulled into thinking that the lie will get past undetected. Insurance companies have sophisticated ways of finding out if a policyholder has lied in the application form, hidden facts or submitted fake documents. Most companies have a panel of medico-legal experts, who scan the documents submitted with a claim, for any discrepancy or attempt to mislead. For instance, there may be no traces of nicotine in the bloodstream of somebody who kicked the smoking habit 2-3 years ago, but his chest X-ray might have some telltale marks of the damage done by smoking.
    The most important thing to remember is that you will not be around to do the explaining. It will be your nominee running around to get the sum assured promised under the policy. Will your spouse or children be able to stand up against the legal onslaught of the insurance company? “Buyers must consider whether the money saved on the premium is worth the risk they take when they submit incorrect information that may lead to claim rejection,” says Ranjit Rai Grover, director of the Noida-based Amity School of Insurance, Banking & Actuarial Science.
    Even if there is a ghost of a chance of rejecting a claim, a company is likely to take the gamble. Private detective agencies are called in to ferret out the medical history of the deceased. Field investigators fan out, inquiring from neighbours, relatives, pharmaceutical stores and hospitals. “In every insurance contract, there is a clause that gives the insurance company (or an agency appointed by it) the authority to access any information from a hospital or clinic where the policyholder was treated,” points Santosh Kumar, head of the Ghaziabadbased insurance investigation agency AMS Inform.
    According to Section 45 of the Insurance Act, 1938, a company cannot reject a policy saying that the policyholder hid facts after two years of issuing the policy. “The insurer must have documentary evidence of the fraud to reject a claim after two years,” says Nutan Tanay, an underwriting professional who has worked with several insurance companies. This is where private spies come into the picture.
    Meet Sanjay Singh, who runs a small outfit, Indian Detective Agency, in Delhi. If an insurance company comes across a suspicious claim, it contacts Singh for discreet enquiries into the lifestyle, social habits and medical history of the policyholder. “We even check the leave record of the deceased person to know if he had a medical history,” he says. Zubair Ahmed, who heads the Hyderabadbased investigation agency Zubair & Company, says their field staff is trained to gather information from medical stores and clinics in the neighbourhood of the deceased to know if he was on medication, and for how long. There are some 800 such agencies, ranging from one-man outfits to large organisations led by professional sleuths, operating in India.
    For insurance firms, the 5,000-10,000 they pay to private investigators is money well spent—it helps them save lakhs of rupees in death benefits. Claims amounting to 336 crore were rejected in 2010-11, 86% more than the claims worth 180 crore rejected just two years ago.
Role of claim settlement ratio
The surge in the number of rejections has led customers to look at the claim settlement ratio of companies before buying an insurance policy. The claim settlement ratio is the number of claims settled by a company out of the total outstanding claims and new cases it received during a specific period. If a company had 2,000 claims pending at the beginning of 2011-12 and received 3,000 more claims during the year, but settled only 4,000 claims, its claim settlement ratio would be 80% (4,000 claims settled out of 2,000+3,000 total claims). An overwhelming 64% of the respondents to our online survey said that they would go by the claim settlement record of the company while buying life insurance. 

    However, experts say that the buyers who go by the claim settlement ratio may be barking up the wrong tree. They say the claim settlement ratio does not have any bearing on the assessment of a claim. “Claims are assessed on the basis of the merits of a case,” says Swapan Khanna, co-founder of insurance research and advisory firm, I-Save. In other words, you can’t be sure that a company with a high claim settlement ratio will pass a claim even if there is something suspicious. There is no need to lose sleep if your insurer has a low claim settlement ratio as long as you have honestly disclosed all information. “No company can refuse a genuine claim. The insurance regulator is very strong and pro-consumer in these matters,” says Deepak Yohannan, CEO of online insurance portal MyInsuranceClub.com.
    The claim settlement ratio itself is a misleading statistic because any claim made within two years of buying the policy (also known as an early claim) is investigated in detail. “An early claim is a warning signal as this could be a deliberate attempt to defraud,” says Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance. Irda guidelines give a company up to six months to investigate a suspicious claim. However, this usually gets stretched, either because the claimant has not submitted the documents sought by the company or some organisa- tion is not cooperating with the investigation. For new companies, such as Edelweiss Tokio Life Insurance, which started operations only two years ago, all claims will be early ones where the policyholder died within two years of buying the policy. So, new firms will naturally have a lower claim settlement ratio, though it doesn’t make them any worse (or better) than older, established players.
Other disclosures
The state of a buyer’s health is not the only disclosure an insurance company seeks from a buyer. They also see whether the insurance cover is commensurate with his income. Taking too high an insurance cover when your income is low is an indication that the policy has been bought for the wrong reasons. Normally, a company will not offer a cover of more than 10 times the annual income and buyers are asked for their income tax returns as evidence. This queers the pitch for small businessmen, who may have deflated their income while filing tax returns. They take multiple low-value policies from different companies but don’t disclose the details. This can be a problem because it gives the insurance company an excuse to hold back the claim, if not outrightly reject it. Nudged by Irda, insurance companies are now sharing their databases to detect such practices.
    Your occupation and lifestyle are also important. Sedentary workers with desk jobs are at a lower risk than those who travel a lot during the course of the day. Those working in plants and at construction sites are in the highest risk group. When Ashal Jauhari (see picture) calculated his premium for a 1 crore cover, the premium came to 10,500 per year. However, after he declared that he’s a chemical engineer and works in a fertiliser plant, the premium shot up more than 200% to 34,000. “My work entails some risks and, therefore, the premium was hiked,” he says. Jauhari ultimately took a 50 lakh cover and plans to continue with the 25 lakh term plan he took some years ago. 

    If you indulge in bungee jumping or other extreme sports, be sure to tell your insurance company about it. If something happens to you during an adventure holiday, the insurance company will not give out anything if you had not mentioned your lifestyle when you bought the policy.
Don’t avoid the medical test 

Most buyers harbour the misconception that a policy which doesn’t require medical tests is good for them. Such plans may be easy to buy, but there is a price to be paid for this convenience. An insurance company will charge you a higher premium, factoring in the possibility that some unhealthy lives will also get covered. So, you are paying for the poor health of other customers. On the other hand, a policy that requires you to undergo stringent medical tests will have a lower premium. “The insurance policies that skip medical tests are generally more expensive compared with those that insist on stringent tests. It’s best to go for plans that require medical tests,” says Sanjeev Pujari, appointed actuary of SBI Life.
    The real advantage is that once you undergo a medical test, the responsibility of determining your health condition shifts to the insurance company. Then the insurer cannot reject the claim saying you suppressed the facts.
    We have said this before, but it needs to be stressed again. Your insurance policy is the bulwark of your financial plan because it safeguards all other investments and goals. Furnishing incorrect information that can lead to the rejection of the claim is being penny wise, pound foolish. It also defeats the primary objective of buying the insurance policy. So, the next time you buy an insurance policy, make sure you are completely honest in your disclosures and haven’t left any loophole for the company to reject your claim.

Harshad Doshi 30, MUMBAI LIFE COVER 2.35 crore from three term policies.
PREMIUM 33,400 per year.
Two insurance companies turned down his application for a term cover after he disclosed that he had kidney stones. Doshi, however, was determined not to hide the condition and got himself a 2 crore term cover just a few weeks before he turned 30 in April this year. He now plans to terminate two term policies he had bought earlier.
“Hiding my condition would have cast doubts on the claim settlement and defeated the whole purpose of buying insurance.”

Ashal Jauhari 34, AHMEDABAD LIFE COVER 75 lakh from two term plans.
PREMIUM 30,000 per year.
When he keyed in his details, the online premium calculator quoted a premium of 10,700 for a cover of 1.1 crore. However, when he disclosed in the form that he is a chemical engineer and works in a fertiliser plant, the premium shot up to 34,000. He agreed, but took a smaller cover of 50 lakh.
“The premium went up because my job entails risks. Instead of terminating my earlier term plan, I will now continue with it.”

Source: The Economic Times - 22/10/2012

How Multi Level Marketing (MLM) schemes with Pyramid Structure works ?

by Manish Chauhan


Today we are going to talk about MLM or Multi Level Marketing Schemes which have a pyramid kind of model. For years and decades, these kind of schemes are active and a lot of people get trapped in these Pyramid Schemes and lose their hard earned money. In this article, we will see the common mechanism they work on and their characteristics. We will also create a dummy Pyramid scheme to show you the traps & pitfalls. Before we move ahead, get this fact that we are talking about those pyramid schemes which also have different levels of people one on top of other and where one guy pays money which gets passed on as reward to another.

How Multi Level Marketing schemes work?

Multilevel marketing schemes are generally network based marketing schemes, in which a person has to add more people under him. The people obviously pay some money to “join” the business and then they add more people under them. In almost all the schemes, the person is incentivized for adding more people under them.
You all must have heard about the AMWAY business model, which is nothing, but a great example of Multi Level Marketing, while the business is legitimate and there is no fraud in it, still it also falls under a pyramid model. Even I have attended its meetings once when I was novice child . The business model looked so easy, just pay Rs 5,000 to join the business and then keep adding more people to “business” and you get some percentage from the entire sales under your Tree. There are various ranks like Silver, Gold , Diamond etc., and the higher your rank, the more you make. Lot of people make money in it through legal way, and more you work harder , the money you can earn, but the point is , people who get in early make more money and the people at bottom struggle a lot.

Why most people lose money in Fraud Pyramid Schemes?

Guess what?!  A lot of people make money in these Multi Level Marketing business models, and they become the ambassadors of the business. They flaunt the cheques and the money they make and believe me, some of them are real!. They really do make money and we will quickly see more on that, but the point is, that the majority of the people lose lot of money and struggle in these kind of get rich quick pyramid schemes. And that happens, because there is a limit to adding people. You can’t add more people in the tree after a certain point and when the tree becomes bigger, than it’s trouble point, it’s reaches a  kind of saturation level when the biggest chunk of people who are at bottom lose all the money. Here is an example graph which will give you a good idea of what I am talking about.

Example of SpeakAsia

You must have heard about the latest craze called Speak Asia Online! I will really not be surprised if you tell me that you were part of it! I will not be even surprised if you tell me you made lot of money too! That might happen if you started earlier! Because then, the scam was still in the making! If you joined at the end, you were at the bottom of the tree you lost your money. This is how it worked!
A person can join SpeakAsia by paying Rs 11,000 and becomes a “panelist.” He then starts getting 2 surveys per week and getting Rs 500 for filling up each of them. That’s around Rs 4,000 per month and 48,000 per year and that was how Speakasia was promoted by its member to lure other members. This was at the start and though the amount of money  coming IN was less than the amount of money which went OUT, and the whole model was unsustainable in long run, it was definitely sustainable in short term. Just think about it! Is it not easy to pay 10 smaller bakras if 100 bigger bakras join the next batch?
And after all that, it crashed! But still there are innocent people out there who claim that it was genuine and it worked for them. They are not wrong! It really worked for them and they made money, but that was part of the game. They wanted you to make lots of money so that you can bring more people in and then one fine day when they make a really big pile money that they can just vanish! Poof!

Breaking Relationships !

The biggest other bad thing about these pyramid schemes are how the relationships become sour and messed up when the person who is part of MLM tries to add all their friends and relatives into the MLM, suddenly they start looking at humans as “targets” , Here is one incident which happened with Shantanu

I know about this as I faced these offers couple of times from my very close friends and relatives. And I know how hard it was for me to tell them “I am not interested”. Those who is a very extrovert in nature and also convince people more, like insurance agents can get success. But most people are in the other side only. In fact one of relative faced very tough challenge later on when people found his scheme a scam. Anyway, I think after such articles also these schemes will come in future and again many will trap in them also.

In one other incident, one of the Fraud scheme called as “Japan Life” made someone lose his girlfriend

Long time back in 2000, my girlfriend got stuck up in a similar scheme called “Japan Life”. They used to take 80,000 Rs. and will give you a magnetic mattress. She tried to get me in as well and I was almost about to get trapped but sanity prevailed and I escaped, however since I did not join, I lost my girlfreind forever. I remember this fraud came up in Star News and I could see so many people getting cheated. This was around New Delhi and surrounding areas

Some other popular Multi Level Marketing and Pyramid businesses which were actually a scam were GoldQuest, StockGuru , UniPay2U etc etc (add more name in comments section if you are aware about them). Moneylife has also done this story on Multi Level Marketing companies in Forex trading, Have a look at it.

Jagoinvestor MLM Scheme – Lets create a SCAM Plan right now

Let me know you how simple it is to create a pyramid scheme and it will look so attractive . You all know I have written a Personal Finance Book called “Jagoinvestor – Change your Relationship with Money.”

Now here is a scheme

• Pay Rs 1,000 and become a member of the scheme
• You get the book FREE on signup
• Make a person join the pyramid scheme and get Rs 250 for each person
• You can add any number of people to this scheme

You realize that if you add 4 people to the group, you will get a 1,000 bucks and a Free Book! So it’s extremely easy for you if you join the scheme early.

Let’s say 10 people join under me.
Level 1 – Add 10 people

So 10 people will pay 1,000 each and I will make Rs 10,000 total , and I will send back a FREE book to all the 10 people. I incur Rs 5,000 expenses and make a cool profit of Rs 5,000.
Level 2 – Add 100 people 
Now let’s see… Each of these 10 people persuade 10 more people under them, and 100 more people join the scheme. They will pay Rs 1,000 each to me;, that means Rs 1,00,000. I will spend Rs 50,000 for the 100 books , and I will be left with Rs 50,000. But out of this 50,000, I need to give a share to each member at level 1, for 1 person the incentive is Rs 250 , so for 10 people, the incentive is Rs 2,500 for each person at level 1, and because there are 10 people at level 1, I will have to pay Rs 2,500 to each at level 1, and I will have to share 50% out of 50,000, that’s Rs 25,000. But I still keep Rs 25,000 with me.
So now you can see, I made a total 5,000 from 10 people at level 1 and Rs 25,000 from 100 people at level 2. And each of the 10 person at level 1 made cool 2,500 from 10 people they added under them, they not only recovered their 1,000 back, but also got extra Rs 1,500 and a FREE book! Wow! This business model is amazing!
Level 3 – Add 1000 people 
So the business is expanding and the word is spreading and my book ambassadors are in the market advertising this scheme and showing the kind of money they are making and the free book they get! Dude! They also have a valid cheque with them! No fraud! . So the word has spread like wildfire now and everyone wants to join this business.
Now, lets say each person at level 2 adds 10 more people under them again, because the word is spreading about this awesome business. There will be 1,000 people at level 3, paying 10 lacs to me and I will incur 5,00,000 expenses. I will pay 2,500 to each person at level 3,  that means 2.5 lacs in total, but I will still keep 2.5 lacs with me.

Level 4 + 5 + 6 

Can you see, how it’s growing? And how people are making money? From 1 person to 10 people, and from 10 to 100 and them from 100 to 1,000? But what next? Level 4? Level 5? Level?
When this reaches level 6 , there will be 10 lakh people under this scheme and they will be paying 100 crores to me! . You guys are going to hate me at that level! . Because you will never see me again! . Neither will I send any more books to anyone!, Nor will I send any share to anyone. I will just run away and you wont be able to trace me! . Any person who would have joined in at the start would find it easy to grow and spread the business. But people at bottom will just not be able to do anything, they are the last batch of fools!

Real Life Examples related to Fraud Schemes

Krishna shares

During my College days there were 2 such schemes ( 7000/- & 1200/- each) introduced to me by my friends & asked me to join them. I explained them that they are highly unsustainable by using simple exponential formula (2^e). But still they thought i am a fool & not making money out of this wonderful Golden “Pyramid”. Thanks to God for that!!!. I just want to say that “User Pure Maths” before entering or dealing with any thing with your hard earned money. Be on your foot not on air.

Sam shares

In 2007, one of my good friend called me when i was out of station. “Sam, i have something great to share with you, when are u coming back? i cant wait to meet you etc etc”. I was kinda surprised and was very curious what he is gonna talk about. He took me to this office where many others showed cheques explained business model, asked me to buy some product and become a member. People were so promising that they will help me , let me grow & earn lots of money and all.. It was ‘Gold Quest International’. That day i made the biggest mistake of my financial life. They made me buy some Gold & Silver coin for Rs.38000 rupees using my credit card. After i joined i tried to reach out to some people in my circle and most of them are already part of it & others are not interested. To pay this credit card bill, i had to take a small personal loan. It was the initial days when i got into job and all these incidents made my financial position worst.

Sachin Shares

I lost 20 K in this MLM bullshit … it was with the name Cossets in Delhi . They arranged a huge pomp show in Siri Fort to show off the happiness of the people who had made money and became millionaires. There were multiple stores in Delhi where u cud purchase if u were a member Then some Ex army also got fooled joined in and invested smthng like 4-5 Lakhs his life savings got duped and then he made a case on the company . Phew Cossets was like GAYAB.

Suhas Shares

My brother was a victim of it late in 2002 in scheme(scam) called netkhazana.He lost around 17k at that time.And from that time I have got recommendations from freinds(?) and relatives(?) in to hell lot of schemes but never got into any because of the first bitter expereince. I suppose this schemes are gr8 if you have selfless people involved but that does not happen as the corpus grows to crores of rupees and people at top tempt to cut the goose.

Other Models of Scam

There are many other multi level marketing scams, which are not in a pyramid model, but they ask for money for some awesome investment based on some logic and then they really give back awesome returns to handful of investors, who spread the word about the scheme and them more and more people join the investment scheme and once it becomes very big, the person who started that scheme vanishes. The Govt is going to take some tough measures on these kind of fraudulent schemes. Here is a nice video which explains more about this.

Beware of these Get Quick Rich models

There are a hell of a lot of schemes and businesses running which show promises of making awesome returns from gold, stock market, real estate and many other kind of investments. They mostly will look really attractive and credible, but always remember that if someone is offering you anything better than bank fixed deposits, there is no doubt that there is some of the other risk involved. The bigger the potential return, bigger the risk.
Disclaimer : Note that we have just discussed how Network Marketing works and the basic mechanism. There might be various businesses and models which are making money, and might be good. This article just wants to bring awareness among people on the concept of pyramid schemes and they fool and loot majority of people in our country .
If you come across any Business like this, first make sure you check that its a member of India Direct Selling Association, which kind of gives a legitimate name and also they follow certain code of ethics. If its not part of this, I would say better stay away from it. Amway is part of it. So, not all Multi level marketing models are fraud, a lot of them are genuine also. Here is what Sunil shares about this

Source: www.jagoinvestor.com

DID YOU LIE WHILE BUYING INSURANCE?

 He is young, earns well and has just become a father. Just the kind of customer insurance companies want to target. Yet, when Harshad Doshi applied for a policy, his request was turned down. “When I disclosed that I had kidney stones, they refused to insure me,” says the Mumbai-based manager in a financial services firm. 

    Despite the condition, Doshi (see picture) has managed to buy a 2 crore life cover for himself—not 
without putting his ailment on record, and disclosing that he had been denied life insurance by another company. “I made full disclosures because I didn’t want to leave anything to chance when it came to the claim settlement,” he says. Doshi had expected a higher premium, but he was in for a pleasant surprise. The final premium was the same as that charged by the company for a person with normal health. He’s paying 23,740 per year for the Click2Protect online term plan from HDFC Life. 

    Not many insurance buyers are as transparent as Doshi. A sizeable percentage prefers to keep its medical problems under wraps. For some, it’s tempting to conceal facts that are likely to push up their premium, or deny them an insurance cover altogether. For others, ignorance is bliss because they let their agents fill up the details. Almost 22% of the respondents to an online survey conducted by Economictimes.com, last week, said they would either not mention their illness or seek the agent’s help in concealing it to keep the premium low. Another 8% said they would not disclose the full extent of the problem, and water it down. 

    Withholding crucial information on the state of your health from your insurance company can have serious ramifications. If an insurance company finds out that a policyholder has concealed information that affects the risk to his life, out goes the claim. Don’t expect a company to be lenient because the policyholder’s family is without support. Every year, about 2% of the claims received by life insurance firms end up in the trash can. Some are crude attempts to defraud, while others display greater finesse. Yet, policyholders leave behind enough loose ends for companies to reject the claims. In 2010-11, nearly 17,500 death claims were rejected (see graphic). An equal number of claims is under investigation and some of these might also get rejected. This is just the tip of the iceberg. As our survey shows, up to 30% of insurance buyers submit incorrect information that could lead to rejection of claims. 

Smoking signals One of the most common lies in a life insurance application is the disclosure of tobacco use. The premium shoots up by 25-50% if one consumes tobacco in any form. So, it’s quite tempting to say that one doesn’t smoke or chew gutkato keep it low. However, one should not be lulled into thinking that the lie will get past undetected. Insurance companies have sophisticated ways of finding out if a policyholder has lied in the application form, hidden facts or submitted fake documents. Most companies have a panel of medico-legal experts, who scan the documents submitted with a claim, for any discrepancy or attempt to mislead. For instance, there may be no traces of nicotine in the bloodstream of somebody who kicked the smoking habit 2-3 years ago, but his chest X-ray might have some telltale marks of the damage done by smoking. 

    The most important thing to remember is that you will not be around to do the explaining. It will be your nominee running around to get the sum assured promised under the policy. Will your spouse or children be able to stand up against the legal onslaught of the insurance company? “Buyers must consider whether the money saved on the premium is worth the risk they take when they submit incorrect information that may lead to claim rejection,” says Ranjit Rai Grover, director of the Noida-based Amity School of Insurance, Banking & Actuarial Science. 

    Even if there is a ghost of a chance of rejecting a claim, a company is likely to take the gamble. Private detective agencies are called in to ferret out the medical history of the deceased. Field investigators fan out, inquiring from neighbours, relatives, pharmaceutical stores and hospitals. “In every insurance contract, there is a clause that gives the insurance company (or an agency appointed by it) the authority to access any information from a hospital or clinic where the policyholder was treated,” points Santosh Kumar, head of the Ghaziabadbased insurance investigation agency AMS Inform. 

    According to Section 45 of the Insurance Act, 1938, a company cannot reject a policy saying that the policyholder hid facts after two years of issuing the policy. “The insurer must have documentary evidence of the fraud to reject a claim after two years,” says Nutan Tanay, an underwriting professional who has worked with several insurance companies. This is where private spies come into the picture. 

    Meet Sanjay Singh, who runs a small outfit, Indian Detective Agency, in Delhi. If an insurance company comes across a suspicious claim, it contacts Singh for discreet enquiries into the lifestyle, social habits and medical history of the policyholder. “We even check the leave record of the deceased person to know if he had a medical history,” he says. Zubair Ahmed, who heads the Hyderabadbased investigation agency Zubair & Company, says their field staff is trained to gather information from medical stores and clinics in the neighbourhood of the deceased to know if he was on medication, and for how long. There are some 800 such agencies, ranging from one-man outfits to large organisations led by professional sleuths, operating in India. 

    For insurance firms, the 5,000-10,000 they pay to private investigators is money well spent—it helps them save lakhs of rupees in death benefits. Claims amounting to 336 crore were rejected in 2010-11, 86% more than the claims worth 180 crore rejected just two years ago. 

Role of claim settlement ratio The surge in the number of rejections has led customers to look at the claim settlement ratio of companies before buying an insurance policy. The claim settlement ratio is the number of claims settled by a company out of the total outstanding claims and new cases it received during a specific period. If a company had 2,000 claims pending at the beginning of 2011-12 and received 3,000 more claims during the year, but settled only 4,000 claims, its claim settlement ratio would be 80% (4,000 claims settled out of 2,000+3,000 total claims). An overwhelming 64% of the respondents to our online survey said that they would go by the claim settlement record of the company while buying life insurance. 
 
    However, experts say that the buyers who go by the claim settlement ratio may be barking up the wrong tree. They say the claim settlement ratio does not have any bearing on the assessment of a claim. “Claims are assessed on the basis of the merits of a case,” says Swapan Khanna, co-founder of insurance research and advisory firm, I-Save. In other words, you can’t be sure that a company with a high claim settlement ratio will pass a claim even if there is something suspicious. There is no need to lose sleep if your insurer has a low claim settlement ratio as long as you have honestly disclosed all information. “No company can refuse a genuine claim. The insurance regulator is very strong and pro-consumer in these matters,” says Deepak Yohannan, CEO of online insurance portal MyInsuranceClub.com. 

    The claim settlement ratio itself is a misleading statistic because any claim made within two years of buying the policy (also known as an early claim) is investigated in detail. “An early claim is a warning signal as this could be a deliberate attempt to defraud,” says Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance. Irda guidelines give a company up to six months to investigate a suspicious claim. However, this usually gets stretched, either because the claimant has not submitted the documents sought by the company or some organisa- tion is not cooperating with the investigation. For new companies, such as Edelweiss Tokio Life Insurance, which started operations only two years ago, all claims will be early ones where the policyholder died within two years of buying the policy. So, new firms will naturally have a lower claim settlement ratio, though it doesn’t make them any worse (or better) than older, established players. 

Other disclosures The state of a buyer’s health is not the only disclosure an insurance company seeks from a buyer. They also see whether the insurance cover is commensurate with his income. Taking too high an insurance cover when your income is low is an indication that the policy has been bought for the wrong reasons. Normally, a company will not offer a cover of more than 10 times the annual income and buyers are asked for their income tax returns as evidence. This queers the pitch for small businessmen, who may have deflated their income while filing tax returns. They take multiple low-value policies from different companies but don’t disclose the details. This can be a problem because it gives the insurance company an excuse to hold back the claim, if not outrightly reject it. Nudged by Irda, insurance companies are now sharing their databases to detect such practices. 

    Your occupation and lifestyle are also important. Sedentary workers with desk jobs are at a lower risk than those who travel a lot during the course of the day. Those working in plants and at construction sites are in the highest risk group. When Ashal Jauhari (see picture) calculated his premium for a 1 crore cover, the premium came to 10,500 per year. However, after he declared that he’s a chemical engineer and works in a fertiliser plant, the premium shot up more than 200% to 34,000. “My work entails some risks and, therefore, the premium was hiked,” he says. Jauhari ultimately took a 50 lakh cover and plans to continue with the 25 lakh term plan he took some years ago. 

    If you indulge in bungee jumping or other extreme sports, be sure to tell your insurance company about it. If something happens to you during an adventure holiday, the insurance company will not give out anything if you had not mentioned your lifestyle when you bought the policy. 

Don’t avoid the medical test Most buyers harbour the misconception that a policy which doesn’t require medical tests is good for them. Such plans may be easy to buy, but there is a price to be paid for this convenience. An insurance company will charge you a higher premium, factoring in the possibility that some unhealthy lives will also get covered. So, you are paying for the poor health of other customers. On the other hand, a policy that requires you to undergo stringent medical tests will have a lower premium. “The insurance policies that skip medical tests are generally more expensive compared with those that insist on stringent tests. It’s best to go for plans that require medical tests,” says Sanjeev Pujari, appointed actuary of SBI Life. 

    The real advantage is that once you undergo a medical test, the responsibility of determining your health condition shifts to the insurance company. Then the insurer cannot reject the claim saying you suppressed the facts. 

    We have said this before, but it needs to be stressed again. Your insurance policy is the bulwark of your financial plan because it safeguards all other investments and goals. Furnishing incorrect information that can lead to the rejection of the claim is being penny wise, pound foolish. It also defeats the primary objective of buying the insurance policy. So, the next time you buy an insurance policy, make sure you are completely honest in your disclosures and haven’t left any loophole for the company to reject your claim. 

Source : The Economic Times - 22/10/12