Before Zerodha, Nithin Kamath fell for a pyramid scheme. Here are top red flags to know

Zerodha co-founder Nithin Kamath on Wednesday recounted his experience of getting stuck in a pyramid scheme when he was struggling to get a start in his career after watching the series Pyramid Scheme on Prime Video. He detailed in a post on X how he got trapped and what his big lessons were from the experience. 

Kamath said that he got drawn into a multilevel marketing company for around 2 years that turned out to be a pyramid scheme. This, he noted, took place when he was trying to find ways to fund his trading account. 

"I don't think I was deceived by the person who introduced me, but by the company itself. Partly because I ended up introducing a lot of people to it, too. The scene in the series showing the moment the fraud unravelled was surreal to watch. The director has captured the desperation of that moment remarkably well." 

Kamath further added that he was shocked to realise how so many Indians lose their savings to such fraud even today. "I didn't realise that even today, 2 new pyramid schemes launch every day in India. Over 5.5 crore Indians have lost their savings to more than 5,300 such schemes, estimated losses of Rs 10 lakh crore as of 2015, likely far higher now."

He went on to share what his own brush with pyramid schemes taught him. "One truth my experience has taught me: there is no quick way to make a lot of money, be it trading or any other business. Anything promising returns higher than a bank FD comes with risk. The higher the claim, the greater the risk." 

He added that the narrative of easy money has played a big part in the recent growth of retail markets. "It isn't, and the reckoning tends to come quietly, one account at a time. And if someone tells you that you can make easy money just by introducing others, run. Almost every single one of those is a fraud."

How to spot a pyramid scheme

Pyramid schemes often promise quick riches, passive income, or unusually high returns. Their earnings model relies more on recruiting new members than selling genuine products or services. Participants may be pressured to buy inventory, pay hefty fees, act quickly, and avoid asking questions about the business.

How to protect yourself

Before investing, check if the company offers a buyback policy for unsold products and have its documents reviewed by an independent expert. Search online for complaints, lawsuits, or scam allegations, and verify that the company is registered with relevant regulators. In India, certain money circulation schemes are banned under the Prize Chits and Money Circulation Schemes (Banning) Act.