How fraudsters sell impossible trades in 'upper circuit stocks' with promise of 5% daily return

The stocks are shown as rising as promised and a third-party app is created to reflect these gains in the user's accounts.

Scamsters are robbing investors by promising big returns from "upper-circuit stocks", sources told Moneycontrol. Trading in such stocks are halted when their prices rise by a predetermined percentage.

However, the con artists claim to sell "primary accounts" or "institutional accounts", which they say can allow investors to buy stocks that have otherwise been blocked from trading because of a sudden surge in demand.

They show that these stocks can give 3-5 percent daily returns and bait investors. It is a compelling pitch, except these trades are impossible to do.

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Market experts told Moneycontrol that no one—whatever type their demat account is—can buy these stocks once the trading in them is halted.

Victims of this scam said that they were asked to transfer money to bank accounts via an app and that they have lost considerable money, running into even lakhs, to this.

Moneycontrol had done a deep dive into on how people are convinced to invest through these apps. While there are several methods and rewards offered, the scamsters first pitch investing in upper-circuit stocks or UC stocks.

Therefore, there are several online discussions on how they were scammed with the promise of UC stocks.

What are upper circuit stocks?

These are stocks that see a lot of buying. With the increase in demand, their prices go up and hit the market regulator-set circuit breakers.

Circuit breakers have been set up to control extreme price surges and dips. They are set at 5 percent rise, 10 percent and 20 percent or a fall by a similar extent.

When a stock sees a sudden surge in demand and its price shoots up and breaks an upper circuit, trading in that stock is halted for 15 minutes or 45 minutes, depending on the trading period.

When they reopen for trading, they typically see a price hike of around 5-10 percent.

What do the scamsters promise?

A person who had deposited money in one such app said that the swindlers said that they could buy the stock after it hit the upper circuit and trading in it was halted.

"I knew that you cannot buy it from a regular retail demat account. They said that they could buy it from what they called an institutional account that works in the primary market," this person told Moneycontrol.

If they could buy it after the trading was halted, then the investor could reap the 5-10 percent increase when trading resumes.

"I noticed that the price did go up like they said it would when the trading resumed," said the investor.

These gains were reflected in the app that the scamsters use as a front. Therefore, the gains are mere ledger entries since no actual buying or selling was happening.

Rajesh K, director of the brokerage firm Alice Blue, told Moneycontrol that no one can trade in stocks that have hit the upper circuit.

"Just as retail traders cannot trade in these stocks once the circuit breaker has been hit, other traders such as institutional traders cannot trade in them," he said.

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He has seen such promises being made in various scam WhatsApp groups and he posts actively to warn group members about this.

That said, group admins of these WhatsApp groups usually delete such messages immediately and block the member who posted it.