Assured returns
Also written Assured or guaranteed returns · Promise of assured returns
A promise of high or guaranteed returns used by Ponzi schemes and unregistered advisers to lure investors — a red flag the booklet tells investors to report to SEBI.
In plain language
When someone promises you a fixed, high return with little or no risk, the booklet wants you to treat that promise itself as a danger sign, not a selling point.
The reasoning is simple: every investment carries some risk, and the higher the promised return, the higher the risk actually is. A genuine investment cannot promise to be both high-return and risk-free at the same time. The booklet lists assured returns among the malpractices reported to SEBI about investment advisers, and among the warning signs of a Ponzi scheme.
This is a different idea from a mutual fund scheme that is formally allowed to promise a return because a named guarantor stands behind it — that is a specific, regulated product structure. Here, "assured returns" is a red flag term for a sales pitch, not a description of a lawful product.
How it works
The booklet lists it twice as a warning sign. Among "malpractices in connection with the activities of registered and unregistered entities acting as Investment Advisers," the first item is: "Assured returns being offered by the investment advisers to the clients."
In the Do's and Don'ts for dealing with Investment Advisers, the corresponding Don't is direct: "Don't fall for the promise of assured returns," and investors are told to "Inform SEBI about Investment Advisers offering assured or guaranteed returns."
Separately, Chapter 11's six signs of a Ponzi scheme open with the same idea from the scheme-promoter's side: "High returns with little or no risk... Be highly suspicious of any guaranteed high return investment opportunity."
A worked example
An unregistered "investment adviser" contacts Naveen and promises a guaranteed 18% annual return, "no matter what the market does," on a Rs 5,00,000 investment.
Following the booklet's Do's and Don'ts, Naveen first checks SEBI's website for the adviser's registration number and finds none. He then recognises the promise itself as the first listed malpractice — assured returns — and declines to invest, reporting the adviser to SEBI instead of simply ignoring the approach.
A neighbour who does invest the same Rs 5,00,000 receives the promised 18% for the first two quarters — Rs 45,000 each time — funded, unknown to her, out of new investors' money rather than any real return. When new money slows down in the third quarter, the payments stop and the adviser stops responding to calls, the exact collapse pattern the booklet describes for a Ponzi scheme.
Why NISM asks about it
Chapter 11 (Caution against Ponzi Schemes and Unregistered Investment Advisers) lists assured returns as a malpractice associated with unregistered advisers, and separately as the first of six Ponzi scheme warning signs. Expect the exam to test that assured returns is a red flag to report to SEBI, not a feature to seek out.
Common exam traps
- This booklet's "assured returns" is a fraud warning sign, not the name of a lawful product. A separate, narrow mutual fund structure elsewhere in the glossary is formally permitted to promise a return because a named guarantor stands behind it in the Scheme Information Document — do not treat the two as the same thing just because they share a phrase.
- Higher promised return means higher real risk, never lower — the booklet states this as a general rule, not just for Ponzi schemes.
- The correct response to an assured-returns pitch is to report it to SEBI, not merely to decline the offer.
- Assured returns appears on both the Ponzi-scheme list and the unregistered-adviser malpractice list — it is a warning sign shared across two different chapters of caution in the same booklet.
Check yourself
1.Which of the following is among the malpractices reported to SEBI in connection with Investment Advisers?
- a)Refusing to predict future returns
- b)Offering assured returns to clients, and on receiving refund complaints for losses, offering higher risk products with a promise of recovering those losses
- c)Asking a client for risk profiling before giving advice
- d)Providing terms and conditions in writing
Show the answer
Answer: (b) Offering assured returns to clients, and on receiving refund complaints for losses, offering higher risk products with a promise of recovering those losses
The chapter lists seven malpractices, and two of them appear in option (b): "ASSURED RETURNS BEING OFFERED by the investment advisers to the clients", and "Mis-selling by IA without adhering to the risk profile of the client, to earn higher fees. ON RECEIVING COMPLAINTS FOR REFUND OF FEES FROM CLIENT FOR LOSS INCURRED, IA OFFER HIGHER RISK PRODUCTS TO CLIENTS WITH A PROMISE THAT THEY WILL RECOVER THEIR LOSSES." The second is the cruellest item in the booklet: the response to a client's loss is to sell them something riskier. The other three options describe good practice from the do's list — "always ask for your risk profiling before accepting investment advice", "insist on getting the terms and conditions in writing duly signed and stamped" — and refusing to predict returns is precisely what an honest adviser does, since "risk and investing go hand in hand." Note too that these malpractices occur among "registered and unregistered entities" alike.
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- Investment adviceAdvice on buying, selling or dealing in securities or investment products, including financial planning. Only a SEBI-registered Investment Adviser may give it for a fee; mass-media commentary is excluded.
- Advisory feeThe fee paid to a SEBI-registered Investment Adviser for advice, payable only through banking channels with a signed receipt — never in cash, and never as money handed over for the adviser to invest.
- Ponzi schemeA fraud that pays earlier investors out of their own money or new investors' money, not real profits. It promises high or unusually steady returns and collapses when new money slows.