PETALING JAYA: It is the same old story. They lure investors, promise exceptionally high monthly returns and when the fund is “ripe”, the crooks pull the plug and seemingly disappear into thin air with hundreds of millions of ringgit defrauded.
The money is often the hard-earned cash of victims who are mostly wage earners with poor financial literacy.
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While gullibility is often blamed, ignorance in financial knowledge when dabbling in investments is another factor.
According to statistics, since 2018 until last month, police have received over 23,000 reports related to investment scams with losses amounting to RM234mil.
The Star spoke to banking and financial experts for an insight into why the absurd high returns offered by dubious investment funds – in some cases up to 30% per month – are unreal and unattainable in reality.
Universiti Tunku Abdul Rahman (UTAR) Centre for Accounting, Banking and Finance chairman Asst Prof Dr William Choo said there are no legal investment funds that pay out such high returns as they are bound by strict guidelines with capital preservation being priority.
“No investment fund can guarantee high returns without any risk to capital. Take a bank’s fixed deposit, for example. On average the rate of return is between 2% and 4% per annum in tandem with the overnight policy rate (OPR).
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“Higher returns typically come with higher levels of risk. If there is a legit fund offering 100% returns, it will also come with the high risk of losing 100% of your money when the market is down.
“When there are no legal businesses that can generate such returns, it is obvious that what the dubious funds offer is a scam,” he said.
Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid said as a yardstick when assessing any investment proposal, one must take into account the benchmark equities index return across the globe, which yields between 7% and 10% per annum on average.
He said investment scams that offer returns between 6% and 30% a month are way too good to be true.
“It’s not an investment but more like gambling. The rule of thumb is high returns mean high risk. I would advise that it is better to be conservative. If we can beat the inflation rate which is 2.5% for Malaysia and earn returns above it, the investment already serves its purpose,” he said.
UTAR Centre for Media and Communication Research chairman Asst Prof Dr Sharon Wilson, whose centre is currently conducting an in-depth research on scams in collaboration with the police, said one should consult those proficient in the field of financial management prior to investing in any scheme with such unreal returns.
“Scams emerging with new tactics are like a virus that evolves and mutates. What we have is akin to a ‘pandemic’ and this is how it should be seen.
“Those with aged parents should constantly remind the elderly folk of the scams out there to prevent them from becoming victims,” she said.
Federal police Commercial Crimes Investigations Department (CCID) director Comm Datuk Seri Ramli Mohamed Yoosuf said if such high returns were indeed attainable, financial institutions like banks and their investment arms would have offered the same deal.
“We found that many of the victims are smart but driven by greed. It is understandable that with the rising cost of living, people are trying to earn as much as they can but getting involved with such fraudulent investments can make it worse because they may lose all their money,” he said.
