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Well-versed in taxes, not necessarily investments

A chartered accountant may help you through the tax maze. But, he may be ill-suited to plan your finances

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The Securities and Exchange Board of India is quite clear about a chartered accountant's role and possibly, therefore, the mandate: Exclude him from the ambit of regulations for investment advisors. However, Financial Planning Standards Board (FPSB) India isn't nodding in agreement.

In fact, to the contrary, it has said,"Chartered Accountants (CAs) offering advice for various financial products should come under the ambit of the regulations, despite the fact that their counsel may be incidental to the accounting practice."

Considering that many route their investments through CAs, any training/qualification to give investment advice should indeed be helpful, feels Ranjeet Mudholkar, principal advisor, FPSB. This gains all the more importance in today's scenario — given a CA's forte in taxation, there may be limitations to seeking financial guidance from him.

Arvind Rao, a CA and certified financial planner, highlights one such, "A CA may not always be up-to-date with the latest financial products or even all features of the existing ones." For instance, if you are buying health insurance, the CA may only be able to guide you with regard to the tax deduction you can claim. He may not be conversant with the nitty gritty of the product, such as exclusions, or even determine the amount of coverage you must get.

More, with CAs, the focus may often be on tax-saving, resulting in ad hoc investments — something that is frowned upon by financial planners who continually emphasise the importance of goal-based investments, even for tax-saving purposes.

Also, the choice of investments must vary according to your age, risk profile and goals.

For example, through investments under Section 80C, you can claim a deduction of up to Rs 1 lakh. These investments, however, could span a variety of instruments, such as insurance policies, equity-linked savings schemes (ELSS) and Public Provident Fund (PPF), among others. While each may attain the shared goal of saving taxes, in your particular case, one may be better than another. So, a retiree would be ill-advised to put money in PPF, as the funds may get blocked for a long time. He may be better off investing in a senior citizen's saving scheme.

Similarly, a person flagging off his career — and with no immediate need for funds — could look at for long-term wealth creation. The bottom line: The CA may not have a holistic vision of your finances, and may focus only on saving taxes.

Last, only investing is not enough: One must regularly take stock of his investments, re-evaluating and checking if these are performing as expected. Your CA, again, may not be able to help you track your portfolio.

As a result, you may get stuck with bad investments or not amass enough corpus.

Rao feels individuals should therefore segregate tax and investment advisory into two separate functions. So, if you sell a property and want to know the most tax-efficient way of managing your gains, a CA may guide you well. However, in choosing investments and planning finances, he may not always be the best bet.

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