Gone are the days when Indian Art just had asthetic value and was bought only to be adorned on the walls of your living room. Today it has gained popularity as one of the alternate investment avenues among the HNIs (High Networth Individuals) after stocks, property, fixed income and gold.
How it started
It all started in the year 2006-2007, when the stock markets witnessed a secular uptrend and the Indian Art market boomed with investments from people scouting for newer investment avenues. Apart from the physical art pieces of renowed artists fetching a premium, a few prominent art funds were launched-
- Yatra by Edelweiss
- Osian’s Art Fund
- Crayon Capital Art Fund
- Copal Art Fund
- Indian Fine Art Fund
- Religare Art Fund
These funds work like Mutual Funds –the fund manager uses the pooled in money from investors to buy art works from galleries or from the artists directly. The profits from the sale are distributed to the investors after deduction of management fees and charges and reflect as an appreciation in the NAV. The Economic Times has also started an ET Art Index as a benchmark to track their performance. Most of them were closed ended, had a basic lock-in period and a minimum entry price of Rs 10 lakhs. The Indian Fine Art Fund has a lock-in of 5 years and requires a minimum investment of Rs 40 lakhs. The Osian’s Art closed ended fund launched in 2006 and wound up in 2009.This fund got into problems on redemption and could not repay the amount in full to the investors immediately.
Art Funds-Pros and cons
Though art funds score over buying physical art which suffers from illiquidity, need for maintenance and storage etc., they have their own advantages and disadvantages.
- Portfolio Diversification.
- Relatively less volatile compared to other investment avenues.
- Low downside risk. More likely to appreciate over time than lose money.
- Low co-relation to other asset classes.
- The market for art funds in India is still nascent, small and illiquid.
- Art funds are unregulated as they do not come under the purview of SEBI and there are no standard methods of valuation.
- Art funds cannot be a source of regular income as they do not pay any interest or dividends in the interim.
- Low on tax efficiency- Art Funds attract short term gains if sold within 3 years and long term capital gains if sold after a holding period of 3 years.
- High initial investment-more suited for HNIs than retail clients.