Why SEBI banned a company offering 14% assured returns

A little while ago, while having some tea at the office, I had a chat with a colleague about his future plans. He shared that he wants to create a good investment portfolio by the time he turns 35 and then switch to mushroom farming in a quiet village for a more peaceful life.

A lot of people working in offices dream about leaving their hectic jobs and starting a farm in a calm place. But, starting a farm can be hard if you don't know much about it.

Now, imagine if a company comes and tells you that you can own a part of a farm with just ₹5,000. They say they will take care of the farming, and in return, you get a high guaranteed return of almost 15%. Plus, they add that you won't have to pay taxes on the money you make. Sounds great, right?

But, as they say, if something sounds too good to be true, it might not be true.

There's a company called Growpital that was offering this, they offered an 14% return on investment and recently, SEBI (the Securities and Exchange Board of India) stopped them.

SEBI has prohibited Farm Tech Silo LLP, operating under the name Growpital, along with associated entities and their directors, from gathering funds from investors. Moreover, they are forbidden from participating in the securities market until further instructions. 
 

To understand why SEBI did this, let's look at what Growpital was doing. It called itself an agri-investment platform, promising tax-free returns of 10-15%. They took money from investors and invested it in different farming projects.

They had projects like Leafy Eleven, Ever Green Returns, and Harvest Bloom, each with its own rules and promises of returns. On their website, they said they managed over 20,000 acres of land and made a good profit from each farm.
 

When you put money into Growpital, you become a partner in a Limited Liability Partnership (LLP). Your money is treated as a contribution to the capital of LLP. They made multiple LLPs for this purpose, like ZF Project 1 LLP and ZF Project 2 LLP.

But here's the problem – SEBI thinks Growpital was avoiding some rules. 

SEBI thinks that if someone is collecting money from a bunch of people, they should follow certain rules called the Collective Investment Scheme (CIS) Regulations of 1999. If they don't, it's like doing something fraudulent. 

So, SEBI had to figure out if Growpital was actually just a Collective Investment Scheme masquerading as a Limited Liability Partnership (LLP). 

SEBI found two main issues with Growpital.

You see, an LLP (Limited Liability Partnership) doesn't have to follow rules that a CIS  has to, they do not have to share financial information regularly. The LLPs linked to the ZF Project don't share financial results with their investors regularly, like every three or six months. Based on the available information, including agreements and websites, it seems they haven't told investors or partners exactly where the farms are located.

Additionally, the rules for Collective Investment Schemes (CIS) say that these schemes can't promise guaranteed returns. But, the Growpital platform is attracting investors by promising them tax-free returns, which is not allowed under these rules.

First, they thought Growpital was using a lot of people's money together and investing it, which could be risky. Second, they felt that even though Growpital said investors were partners, in reality, they had no say in anything. Growpital made all the decisions.

SEBI's order was clear – Growpital can't ask for more money, can't use the money they already have, can't sell any of their investments, and has to remove anything misleading from their websites and materials.

This means investors are stuck for now. They can't get their money back until SEBI finishes checking everything. SEBI is worried that Growpital might not be following the rules, and they want to make sure everything is okay before things go wrong.

So, the lesson here is to be careful with your investments. If something looks too good, it might not be good at all. Always check if the authorities are okay with it before putting your money in!