Tyre Kharido, Car Free :)

“Tyre Kharido, Car Free” (Buy one Tyre, Car is Free)!

Sounds funny? Might be, but believe me, it is true !!.

Couple of months back I came across with this advertisement in a national daily. Was curious to know the deal, on a close look found an * mark with conditions apply. And you can imagine the “condition”... the usual ones… “On purchase of so many tyres, your chance to win a car doubles up and blah blah…”. Quite usual advertisements in print media or in electronic media. Not unusual these days !

The interesting part is the “conditions apply”  – in almost zero font size :); quite similar to the statutory warnings on Cigarette Packs. Not only that, the price of the selling items are hiked considerably in general, which go un-noticed by the customers as the attention gets diverted to the free tag. One should be very careful while going for these kind of deals and should understand the Conditions carefully. Else…. But unfortunately the conditions are never explained properly in the advertisements.

On a similar note, I came across with another advertisement “Cooler Kharido, Refrigerator Free” (buy a cooler and get a free refrigerator); during the hot summer days of Delhi. Was fascinated by the advertisement at that time. Next morning I went to that shop (spend some 4 hours to locate the shop and Rs 200/- by auto) to get the air cooler and a refrigerator. But, to my surprise the Air Cooler which normally costs Rs 3000/- in the market, was labelled with Rs 6500/- and the free refrigerator was of no use for me as it was very small. Came back home on a sad note 😦 . I should have understood the conditions applied well before spending my time and money.

On a slightly different note, every one of us have experienced the famous “Buy one and Get one Free” deals in malls, in cinema halls or in eating joints like Pizza-Huts, Dominos or McDonalds etc. These tag lines are to lure the customers to and to sell more. Customers buy more and spend more — it does not matter whether the need of the free item as well as the first item is there or not!

The tag line “Buy one and Get one Free” is just another marking concept and a sales promotion method for shops, companies and dealers. Companies/dealers usually adopt this method to clear the stock or to quickly reach the market. One should not get lured by the word FREE, instead should realize Nothing is Free, some thing or other has to be paid to get that which appears to be Free.

Selling something and giving something free is becoming a regular marketing concept; either buy one get one free (of the same or different item) or “buy two get one free” or “buy this get that free”, are free flowing tag lines now a days. Be it “buy one and get one free” or “buy this get that free”, these lines are usually profitable to the company and can be profitable to the customers if they buy the items judiciously. It is profitable for the shop/company in the sense that, shops usually hike the price of the first item to a certain extent (off course not by 100% !!), such that the price of the free item is covered to some extent. They earn profit from the huge amount of sales due to the promotional offer.

The customers too can make the deal profitable, only if there is a need to buy the items both first and the free item. Else, the customer will end up paying more not only for the first item, will waste the second item (happens mostly in food items). Being aware of the cost of the individual items definitely help the customers to decide, whether to go for the deal or not.

Saying that, let me narrate some of my experiences on the free purchases….

Recently, I went for a magazine deal and ended up paying Rs 1500/- for 3 years subscription, which was almost 50% of the regular price. Yes, it was profitable to me in one sense that I saved 50% on the price, not only that I also got a pair of shoes FREE 🙂 . But, when critically analysed, I realized that, it was not at all profitable to me. Because, neither I’m a fan of that magazine and nor I need a pair of shoes at this point of time. Not only that, the same magazine is also available for reading in my Hostel/Office for free.

So, what do you say? Profit or loss for me? But, it is definitely a profitable deal for the publisher. Not only the publisher got some money as investment (by bulk number of 3 years of subscriptions), but also, it got some sure-shot number of readers or customers, which can be priced to the advertising agencies in their future issues as the magazine reaches out for wide circulation.

Same thing applies to free credit cards, where the joining fee is mostly waved (or  pay the fee and get free vouchers), with a substantial 2nd year renewal fee (with or without free shopping vouchers). But, the question is why should we pay and then get a shopping voucher in return? Forcing the customer to buy some thing? and most important is to forcing the customer to visit a shopping mall for that? Interesting 🙂

In another case, one of my friends bought a washing machine for Rs 14000/- using his credit card (as he was short of money at that time). The reason being, he got a free item of Rs 700/- (got a Coffee maker by the scratch card) and a discount of 2%! Yes, by doing that the shop cleared the stock and sold many washing machines in a month’s time; naturally increased its total profit.

But, my poor friend, has a habit of forgetting paying the credit card dues in time — paid a fine of Rs 1500/- (including the interest and late fee) to the bank. Not only that, he never uses his coffee machine (as he does not drink tea/coffee). So for him, the deal was a total loss (which might be a profit for some one else!). He hardly realizes and repeats his mistakes again and again !!

Those are just some of the experiences; which every one of us have experienced in some or other context. So next time when you see “Buy one Get one Free” or “Tyre kharido, Car Free”… do not get fascinated, keep cool, think twice whether you really want to buy this and do you really need that free item or not… Else, you will end up with same stories…

Aamjunta … what do you think?

PS: A shortened version of this article was published in July 2008.

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Chit Funds or Cheat Funds – the Recent Saga of India’s Investors

The recent Chit Fund fiasco in West Bengal has not only pushed the panic button for the Indian Investors, but also opened the Pandora’s box of our corrupt system and the state of awareness of the aamjunta. This is a case in which all the three parties are to be blamed equally – the Investors, the System or the Government and the investment Agencies. Though the issue of cheating and fraud came to light because of Saradha fiasco in West Bengal, Odisha is not far behind in any sense. More than 85 companies are operating in Odisha with a turnover of roughly Rs. 20,000 crore, and there are more than 100 Chit Fund companies (mostly Ponzi Schemes) operating in West Bengal alone with a turnover of roughly Rs. 75,000 crore.

With CB-CID investigations, the list and the amount of fraud and cheating is bound to increase in both the states. Interestingly, some of the Schemes /Companies are old, operating in multiple states, run by well known politicians or their relatives, with a huge capital investment. Coming to Investors – most of them are poor rural people, unaware of the Ponzi Schemes, and are lured mostly by the young unemployed Agents. On the contrary and surprisingly, a good percentage of the Investors are also well-educated, well-aware about the recent happenings or uncertainties. They too could not resist the temptation of becoming rich or richer over-night… and lost their money in the process. In many places, there are numerous reports of suicides both by the Agents and the Investors.

The Chit Fund empire is so complex and so big that it has forced the Government to consider scrapping the Chit Fund Act of 1962 in entirety. Though the pressure is mounting on the Government to order a CBI inquiry of the entire process, in my opinion, CBI inquiry may not be useful as the CBI’s reputation is also at stake in the wake of recent developments; some of their own Officers have been accused and sent to CBI custody for allegedly taking a bribe from a businessman regarding settlement of a land dispute case. In fact, one of these Officers was heading the Coalgate scam probe !

Moreover, why do we have the “reactive” mentality to each and every problem ? Can’t we adapt the “proactive” mentality ? Let’s check where exactly the problem is ? Is there any remedy for these in future ?

As pointed out before, there are three broad parties associated in any kind of investment. They are:

1. The Investment Agency

As per the law of the land, the investment Agencies are supposed to be operating under RBI’s guidelines and State /Centre’s special Acts or Amendments. But in most of the cases, the Agencies are not even registered to offer the Schemes, which they simply roll out in the market. Apart from this, most of the Agencies are either owned by a family or a group of relatives or politicians. Sometimes the companies are created to transform the black money into white, without paying any heed to national economy or security. The investment Agencies select their Directors in such a way, that it becomes easy for them to hide the crucial facts to the people; most of the time the Directors of such Agencies are none other than their drivers, cooks, house-maids, and the like, even without their knowledge !

While India is struggling with unemployment, getting Agents at a low salary is not difficult. Hiring Agents is also tricky; first enrol them as Investors and then lure them with perks, AC train-tickets, gifts and sometimes air-tickets for holiday trips to work as Agents set with achieving a certain amount of “target” i.e., number of Investors and Investment.

I remember, some of my friends who were hired by a similar Agency in 2009 were taken to Malaysia and Singapore (with their family) for a free holiday trip. Not just that; some Agents were gifted with Maruti-800 cars by their Chairman !! Tempting ! Seeing them  make good money in a short span of time, other Investors get attracted and deposit their savings with them, without casting any doubt.

In the initial days, the Agents never fail giving back the monthly interest to the Investors; the payments are always in time and sometimes, even in advance. The one in advance is mostly to give an impression (false) to the Investors that their business has been doing extremely well or performing above expectations ! Surprisingly, the interest rates are almost 24 – 36% per annum; whereas the Post Offices, Life Insurance Policies, and other well-known deposit Schemes give interests not more than 8-10% per annum.  The greed of easy money and becoming rich / richer overnight are the prime factors for both the category of Investors.

Other than giving direct interests to the Investors, companies like Hi-tech in Odisha and Rose Valley in West Bengal later started providing lands/plots in the prime localities of Bhubaneshwar, Cuttack, Kolkata, etc., based on small monthly instalments. The Schemes are so attractive and the Agents are so adept in opening heart-to-heart conversations with the Investors, that no one ever has an iota of doubt while investing. And that too, even in obtaining a plot in the capital cities at a cheaper rate. Surprisingly, in the last raid on Hi-tech in December-2012, it was found that in Bhagya Nagar (outskirts in the city of Bhubaneshwar, Odisha) alone, Hi-tech had promised to give plots of 484 hectares while they actually owned only 4 hectares of land. They are not the only ones doing such business in the market !!

Other well-known companies like Rich Mind, Saradha, Artha Tatwa, Seashore, Safex Infra, Ashore, and many others – almost 200+ odd Agencies have been active in the states of West Bengal and Odisha. Their main target is always the border districts of Odisha, West Bengal, Chattisgarh, Assam, Jharkhand and Andhra Pradesh. As it happened in Saradha’s case of quick closure and disappearance, most of the other companies also simply shut down their entire operation over-night and disappear with the entire money, leaving behind many Investors and Agents on the cross-roads to awfully suffer at various personal levels, to bear public wrath, face legal charges, police harassment, etc.

2. The Investors

It is obvious that the high rate of interests in the range of 24-36% per annum offered by the Agencies are tempting to invest in such Schemes. In addition, more than 95% of the Investors deposit their savings on the face value of the Agents working with those Companies, without checking a single document. ‘You know he is like my cousin… he has ensured the amount and promised me by the name of God that his Company is genuine, and they have their local branch here in my town, where my niece is a clerk. Where will they go ? We will get the money without any problem, and everybody is investing… so what is the big thing here to check ?’ – is the usual reaction, if you ask the Investors at the time of making their investments, whether they have checked the credentials of the Company or the Agent !

No one checks the credentials even though all the documents can be apparently verified by a couple of mouse-clicks in this age of Internet. What surprises more is the mode of transaction ! Most of the times, the entire transaction is by cash only, without any proper receipts or deposit certificates. As long as the Investors get their returns, no one bothers (including Media and the Regulator bodies) to check the validity of the Schemes, the mode of incomes, the mode of operations, etc. Rather, Investors bring in more Investors, hoping that the company will flourish and will give more and more returns, gifts, free tours to Singapore or Switzerland, etc.

Only when the problem starts and Investors complain, the Media becomes active with their ‘24/7 breaking news‘, demands of CBI investigation starts with public strikes, dharnas, attempts of suicides, etc. With such an ignorance, greed and attitude, do you think any fool-proof solution can at all be provided to the Investors ? I doubt…

3. The Regulators

India of course has many Rules, Articles, legal Sections, Court rulings in place to handle these kind of problems. However, the implementation of such Rules is the key. As per the Government, Chit Funds are a traditional business, strongly regulated by the State Governments and Central Government, Security and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). If that is so, then why have so many issues cropped up, whether out of the blue or not ? There are definitely many disorganised, unregulated Companies operating right under the nose of the Regulator bodies. They mostly operate Ponzi Schemes or Chain Investment Schemes, and take deposits promising unrealistic rates of return- double return in 2.5 years, prime land or flat in a posh locality at a cheap rate.

As per an RBI study, Co-operative banks are more suitable and bankable for the poor. If that is so, tailor made Schemes should be implemented in the rural areas under the supervision of RBI, not the Ponzi Schemes. There should be a blanket ban on Schemes promising unrealistic returns. This can be done by the Regulators, and the Investors should inform the Regulators without any delay or fear, when they are approached with Ponzi Schemes or the like.

The other important point RBI, SEBI and other Institutions of the State and Centre should consider is the amount of moveable and immoveable property of the Companies operating in rural areas. If these Companies are merely collecting money and promising lands/plots or flats on the Investment, then they should have enough assets to honour those promises. Government should ensure that this provision is satisfied at all the times. But that does not happen, and most of the claims made by Saradha, Seashore, Ashore, Hi-tech, Artha Tatwa, and many others are simply a sham without any real assets. They just create an illusion, which the finance watch-dogs should have sensed in time. And now, the poor aamjunta (Investors and Agents) is suffering and repenting to the core !

The most surprising post-reaction came from West Bengal on Saradha fiasco when the CM wanted to levy more tax on Cigarettes and distribute the extra money thus raised, among the Saradha Investors. I do not observe any logic in it at all… Instead of curbing the cheat Chit Funds / Ponzi Schemes and forcing all the associated Companies to return the money to the Investors, if the authority takes a short-cut perhaps for sake of retaining or reinforcing vote-banks, then no doubt aamjunta will again suffer eventually. Vote politics does not work all the time. If Investors money is compensated in this way, then in crude terms it just means- someone (a duped Investor) is going to be paid from his own pockets and other’s also who are not involved in any way !!!!

Aamjunta…what do you say ? Planning to invest ? I strongly suggest- say no to Chit Funds unless they are properly regulated through transparent policies. In general, regarding any Scheme, be very careful and keep your eyes and ears open all the time.

Jai Hind.

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