Fintotal News Analysis | Spare Yourself the Vanishing Companies Menace
Spare Yourself the Vanishing Companies Menace
, 27 Nov 2012

Yesterday the Minister of Corporate Affairs Sachin Pilot released the list of 87 companies vanishing as on 31 March 2012. All these had raised funds from the public through IPOs. The government ministry and SEBI have initiated efforts to take action against their directors but how much of capital investors recover (if at all, that is) would have to be seen.

Recently there was another news of the Rs 1000 crore Stock Guru India scam that sent money of many investors from across the country down the drain after promising to double it in six months time. The nabbed couple had promised trading solutions in various financial products but actually used investors' money to buy real estate in various locations.

These remind us of familiar lessons. It is clear that investors of these companies were not prudent in their choice. In case of IPOs information about the company is limited. And whatever little we get to know is mostly restricted to what the promoters want us to know. There is not much investors can do other than staying away from IPOs. Yes, IPOs should be chucked by retail investors.

After all there's nothing much to miss in IPOs that you cannot achieve through secondary trading. IPOs of even the best companies can deem unprofitable if they are not bought at the right rice. Classic example is the Facebook IPO. The problem in IPOs is that sometimes it is hard to say what the right price is, since reliable information is not always available. So after you've studied the fundamentals wait until the IPO is over and buy shares on the exchange.

The second case is sadder. Gullible investors blindly gave away money believing it would double in just six months. Stock Guru India was not registered with SEBI or the RBI to float any scheme but it did have a website talking about the business in financial jargons. 

Many chit funds and such similar schemes do not have RBI's approval. Approved schemes and companies work under legal and regulatory framework. Get-rich-quick schemes should be avoided. Many times they resort to unapproved means to achieve what they have promised.  Investors should not put their money in schemes that do not have approval of SEBI or RBI.

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