Zerodha CEO, Nithin Kamath, recently issued a strong warning to investors about the risks of trying to make quick money in the stock market. In a post on the social media platform X (formerly Twitter) on December 7, Kamath cautioned that shortcuts and promises of high returns often lead to significant losses. Kamath’s message is timely, as it comes after the Securities and Exchange Board of India (SEBI) took decisive action in two major stock market scams that have been making headlines.

In his post, Kamath echoed the old adage, “If something is too good to be true, it almost always is.” He highlighted the dangers of falling for promises of quick, guaranteed returns, a sentiment that is especially relevant given the ongoing crackdown by SEBI on fraudulent schemes in the financial markets.

The Two Scams Exposed by SEBI
Kamath’s warning was linked to two significant stock market scams that have recently come under SEBI’s scrutiny. The first involves Trafiksol ITS Technologies Ltd, a company that was found to be involved in fraudulent activities and shell company dealings. The second scam involved a self-proclaimed financial influencer known as “Baap of Chart,” who misled investors into paying for unauthorized investment advice with promises of sky-high returns.

Trafiksol ITS Technologies Ltd Scam
On December 3, SEBI took strong action against Trafiksol ITS Technologies Ltd, canceling its listing on the Bombay Stock Exchange (BSE) and ordering the company to refund ₹45 crore of investor money. The scam centered around the company’s dealings with a third-party vendor, Trafiksol, which was supposed to supply critical software for the company’s smart city initiatives. However, upon investigation, SEBI discovered that Trafiksol was a “shell company” involved in fraudulent activities.

The investigation revealed that Trafiksol submitted falsified documents in an attempt to justify the ₹17.7 crore earmarked for software procurement. SEBI found no credible justification for engaging such a questionable third-party provider. As a result, SEBI not only canceled Trafiksol’s listing but also instructed the BSE to oversee the refund of the ₹45 crore to investors. This case serves as a stark reminder of the risks involved when investors fail to verify the legitimacy of companies and their dealings in the market.

“Baap of Chart” Finfluencer Scam
The second scam involved a popular financial influencer known as “Baap of Chart.” This individual had been promoting himself as an expert in stock market trading and had built a large following by offering stock recommendations in exchange for a fee. Operating under the guise of educational courses, “Baap of Chart” and his team provided direct buy or sell stock recommendations to clients, convincing them that their investments would yield guaranteed returns.

According to SEBI’s investigation, the influencer and his associates amassed ₹17.2 crore in fees from investors. However, as SEBI pointed out, the influencer was operating without the proper licenses and had been running an unauthorized investment advisory service. After months of investigation, SEBI banned the influencer from participating in the stock market for one year and ordered him to refund the ₹17.2 crore in fees. Additionally, the individual was penalized financially for his role in the scam.

This case highlights the growing concern over unregulated financial influencers, or “finfluencers,” who promise unrealistic returns and charge hefty fees for their advice. Kamath’s warning about the dangers of trusting such figures underscores the need for investors to exercise caution and verify credentials before following investment advice from online sources.

The Role of SEBI in Protecting Investors
SEBI has been playing an increasingly important role in regulating and overseeing the Indian securities market. In recent years, the market regulator has ramped up its efforts to crack down on fraudulent schemes and protect investors from scams. The actions taken against Trafiksol ITS Technologies Ltd and “Baap of Chart” are just two examples of SEBI’s efforts to safeguard the interests of investors and maintain the integrity of the financial markets.

Kamath’s warning aligns with SEBI’s efforts to educate and protect retail investors, emphasizing the importance of doing due diligence before investing. With the rise of online trading platforms, social media influencers, and unregulated investment advisory services, it has become more important than ever for investors to be vigilant and avoid falling prey to scams.

Investor Takeaways and Best Practices
Nithin Kamath’s advice is clear: investors should avoid seeking shortcuts in the stock market and be wary of promises that sound too good to be true. Here are some key takeaways for investors looking to navigate the stock market safely:

1. Avoid “Guaranteed” Returns: If an investment promises guaranteed returns, it is likely a scam. There is no such thing as risk-free, guaranteed profit in the stock market.
2. Verify Credentials: Always verify the credentials of anyone offering investment advice, especially if they claim to have insider knowledge or a secret strategy. Look for proper regulatory approvals and licenses.
3. Educate Yourself: Take the time to understand the stock market and its inherent risks. Relying on your own knowledge is always safer than following unverified advice.
4. Be Cautious of Unregulated Influencers: Financial influencers or “finfluencers” can offer valuable insights, but many operate without proper regulation. Avoid following individuals who are not registered with SEBI or other relevant authorities.
5. Report Fraud: If you encounter suspicious activity or fraudulent schemes, report them to SEBI or other relevant authorities to protect yourself and others from falling victim to scams.

Conclusion: Trust and Verification Are Key
As Nithin Kamath rightly points out, trying to make quick profits in the stock market is a recipe for disaster. The recent actions taken by SEBI against Trafiksol ITS Technologies Ltd and the “Baap of Chart” finfluencer highlight the risks investors face when they ignore due diligence and fall for high-return promises. By following sound investment principles, verifying credentials, and avoiding shortcuts, investors can minimize their risk and build long-term wealth in the stock market.