Find out how you can spot an investment scam and what you can do to avoid falling prey to one.

Spot the red flags

Scammers use increasingly sophisticated and effective tactics to get you to part with your money. Even though some investment scams may look like a real deal, there are some red flags you can spot to help you steer clear of them.

High returns at low or no risk

All investments carry risk. The greater the promised investment returns, the higher the risk.

Be wary when you encounter an investment opportunity that claims to guarantee or protect your capital while promising high returns. Many investment scams offer such lucrative promises in order to lure investors in.

It is important to check how the investment scheme can generate such high profits with low or no risk. Benchmark the returns - find out what other investments offer the same returns and see what the risks are like. It is unlikely that the investment you are being offered can provide the same returns without the same risks at least.

Pressure tactics

• "Limited time only! Invest before it sells out!"
• "Special rates for first 50 investors. Don't miss out on this golden opportunity!"
• "More than 2,000 people have invested - what are you waiting for?"
• "Invest today and get extra 10% credit with many other benefits."

Pressure tactics, ranging from limited offers to timed gifts or rebates, are commonly used in investment scams. The purpose is to rush you into committing your money without thinking.

Before you commit, always ask yourself if you have fully understood what you are buying into. If in doubt, it is safer to walk away with your wallet intact than to commit to any investment on impulse.

Offer of commissions

Most legitimate investment schemes generally do not offer commissions to investors for referrals.

Investment scams tend to use such incentives to encourage existing customers to bring in their friends and associates so as to quickly enlarge their investor base.

Fictitious track records

Investment scams often claim to be well-established in order to gain your trust. They may claim to have many years of experience, won multiple accolades or simply have made a large amount of money from their investments.

Some also use testimonials of "satisfied customers" who have made money from the investments to shore up their credibility.

You should approach such claims with healthy scepticism, and avoid taking these claims at face value. Where possible, do your homework and verify the claims with an independent third party.

Regulated or not?

Some investment scams may even claim to be regulated by the relevant authorities to mislead you.

Confirm such claims by using the Financial Institutions Directory on the Monetary Authority of Singapore (MAS) website.

This matters because MAS aims to safeguard the interests of consumers by ensuring that only professional persons are allowed to provide financial services. The laws administered by MAS also require disclosure of information on investment products being recommended to consumers. These safeguards will not be available to you if you choose to deal with an unregulated company.

See also: Dealing with unregulated persons

Invest cautiously

Before committing your money to an investment, keep in mind these 3 simple steps:

1. Ask

Ask the company as many questions as you need to fully understand the investment opportunity.

If the company is unable to answer or avoids answering any of your questions, be wary. Here are some examples of questions to ask:

• How are the profits generated? Is the return being paid from new in-flows of money or from returns from actual investments? What is the maximum I can lose?
• How long must I stay invested? What happens if I want to withdraw my money? What are the penalties, restrictions and procedures?
• What are my options for recourse if anything goes wrong?

Even if the company is able to provide answers, do not be too quick to believe everything you are told. Be sure to check.

2. Check

Check on the company, its owners, directors and management members, and the investment opportunity.

Doing so will help you to assess if the investment opportunity is genuine. Ask someone you trust to help you with your checks if necessary. Here are some examples:

• Check if the information provided by the company about itself is true. For example, check their address, business registration number and track record.
• Check if the information (E.g. experience, qualifications) about the company's owners, directors and management members is true.
• Check if there are any complaints or negative comments about the company or its related persons in the news or online forums.

Even if you do not find any information that suggests that the investment opportunity is dubious, you should still confirm.

3. Confirm

Confirm, before investing, the company’s and any representatives’ credentials by using available resources including the following:

• Financial Institutions Directory – a list of entities regulated by MAS
• Register of Representatives – a list of individuals who conduct activities regulated by MAS
• Investor Alert List – a non-exhaustive list of entities unregulated by MAS who may have been wrongly perceived as being licensed or authorised by MAS

Remember, dealing with an unregulated company means giving up the safeguards offered under the laws administered by the MAS.

If it sounds too good to be true, it probably is.