PETALING JAYA – Alternative investment schemes, which offer “guaranteed” and higher returns than conventional investments, are getting increasingly popular, as rising living costs prompt the man in the street to ignore the risks involved with such claims.

Digital currencies, foreign exchange and binary option trading are among the most sought-after alternative investment schemes in the market, offering 30% monthly returns on capital in some cases and guaranteed 10% returns in others.

One such investment that has “prospered” over the years is a digital currency called Mcoin, issued by Penang-based MBI Group.

While not on Bank Negara Malaysia’s consumer alert list, the company deals in digital currency which the regulator said in January 2014 it does not recognise as legal tender and the public advised to be cautious of the risks associated with the usage of the digital coin.

Mcoin is accepted at many places in Penang, including its “flagship store” M Mall, which is adjacent to Penang Times Square.

Interestingly, the coins can be used to make partial payment for selected cars and properties, which are showcased at the mall.

An economist who declined to be quoted questioned whether alternative investment schemes can be called “investments”, as they must be supported by an underlying asset.

“For a proper/deposit-taking investment, you need to have an underlying asset for valuation purposes. Actually, this kind of thing is illegal. So far, because of the grey area, there are loopholes.

“None of the institutions want to be responsible, that’s why you’ve things like these happening in this country. No one is supervising these alternative investments,” he told SunBiz.

There have been growing calls for the government to have greater control of non-regulated investment activities. However, one issue seems to be the jurisdiction the alternative investment falls under.

When contacted, Bank Negara Malaysia said these alternative schemes are not under its purview. The Securities Commission only regulates capital market instruments.

The economist stressed that when it comes to deposit-taking, it has to be subject to certain rules and regulations to protect depositors’ interests.

For instance, he said, the pricing of trust funds is based on a set of stocks and bonds.
“And then there is a transparent mechanism whereby you translate into your unit price on a daily basis. So the unit is the underlying asset,” he explained.

The economist said he is unsure whether all the alternative instruments in the market are transparent enough in their trading.

“It may start off as a means of payment, but when you start to take deposits, that is when the risk comes in. Because of deposits, you may have that type of pyramid scheme.

“I can always draw on more depositors to come in, then I pay off the earlier subscribers. Then where does it end? Where is the underlying investment? What did you do with the money?” he asked.

“Many schemes start off as members’ schemes. You join me then you will get a certain privilege among the group members,” he added.

The size of the alternative investments market is unknown but it looks to be growing.

Hence, the economist is concerned over the investment return for the alternative schemes.
“The attractiveness is the amount of depositors that come in. It will crack one day when there is mass redemption. Then how do they deal with it?

“When there is mass redemption, then it will face an illiquid situation and you don’t have underlying assets to support the mass redemption,” he said, noting that all these schemes should be subject to rules and regulations, especially if they involve deposit-taking from the public. – Sundaily