The Reserve Bank of India, on Thursday, cautioned investors against multi-level marketing firms that promised high returns and run on hefty member subscription fees, warning such offers could result in direct financial losses.
The central bank also said accepting money under such structures was a cognizable offence under the Prize Chits and Money Circulation Schemes (Banning) Act of 1978.
In a statement, it said that MLM/chain marketing/pyramid structure schemes promise easy or quick money upon enrolment of members.
“Income under such schemes majorly comes from enrolling more and more members from whom hefty subscription fees are taken rather than from the sale of products they offer,” the RBI said, adding the schemes make it incumbent upon all members to enroll more members, as a portion of the subscription amounts so collected is distributed among the members at the top of the pyramid.
“Any break in the chain leads to the collapse of the pyramid, and the members lower down in the pyramid are the ones that are affected the most,” it said.
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