MUMBAI (Reuters) - The Reserve Bank of India (RBI) on Thursday cautioned investors against multi-level marketing firms that promise high returns and run on hefty member susbscription fees, warning such offers could result in direct financial losses.
Multilevel marketing structures work on the principle of enrolling more members and a part of the subscription amount is distributed among members at the top of the marketing pyramid.
"Any break in the chain leads to the collapse of the pyramid, and the members lower down in the pyramid are the ones that are affected the most," the RBI said in a circular on Thursday.
The central bank also said accepting money under such structures was a cognizable offence under the Prize Chit and Money Circulation (Banning) Act of 1978.
(Reporting by Suvashree Dey Choudhury and Dipika Lalwani; Editing by Biju Dwarakanath)
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