Investing directly in art has its own drawbacks. For one, these artworks need to be protected against theft and damage. Second, you need to have large sums of money to buy these works. Third, they occupy a lot of space. So for those looking to invest in art but have money and space constraints, there are art funds available, where you can pool your money along with other investors and invest in art. Some reputed art funds operating in India are Osian’s Yatra and Indian Fine Art Fund.
Scared of the volatility in stock markets? Bored of the bank FDs, insurance and other traditional debt products? Looking for other innovative investment options that provide high returns? Have you given a thought to Art? Don’t be surprised. While art is pleasant to your taste buds, it can also help you earn good returns. Today, art has become a popular investment option amongst the rich and high net worth individuals. Let us discuss this new investment option and if it is for you.
Investment in art can be done either by purchasing the artwork done by reputed artists like M. F. Hussain, Anjolie Ela Menon and Akbar Padamsee or investing in an art fund. The major investors in direct art include museums, private collectors, art galleries and curators. In the developed markets, the trend starts with the museums, followed by private art organizations, private collectors and ultimately the commercial art organizations. However in emerging markets like India, the trend is reversed. Here the commercial art organizations are at the top, and followed by private collectors, with public art organizations like museums being at the bottom. As a result, the prices of art are decided more on the basis of sentiments and perception than the actual auction prices.
This has been due to low levels of education prevalent in these markets and absence of commitment to the artists from the galleries. However with the recent crisis affecting all markets and the sharp rise in prices of the artworks by reputed artists, even art markets have not been spared. They are also witnessing a slow down and there is no guarantee which way the markets will move in the future.
But despite the slowdown in the art markets, there has been a tremendous demand for artwork from the various art collectors, both personal and commercial. As a result, many new artists are entering the art market. They are holding exhibitions in various art galleries to showcase their talents. These exhibitions are well attended by many art lovers and the response has been tremendous.
So now are you sufficiently intrigued? Do you want to know how to buy an artwork? For one, to buy an artwork, you can visit the auction houses, where the artworks are being bid and start bidding on the artwork of your choice. It will allow you to buy the artwork of your choice at your price. However the problem here is that since the highest bidder gets to keep the item, you may not win the item. This leaves you with another option: purchase at an art gallery. There are many art galleries, both online and offline where you can buy the items of art. They also help you in selling the artwork, if you are looking to sell artwork for cash. Alternately there are art exchanges, where you can trade your current artwork with others.
However remember as these art objects are regarded as investments, they would attract a capital gains tax. If they are sold before 3 years, they attract a short term capital gains tax, whose rate and if it is sold after 3 years, you have to pay a long term capital gains tax at the rate of 10%. This makes this type of investment expensive for tax payers falling in the higher tax bracket, as their tax liability goes up.
Investing directly in art has its own drawbacks. For one, these artworks need to be protected against theft and damage. Second, you need to have large sums of money to buy these works. Third, they occupy a lot of space. So for those looking to invest in art but have money and space constraints, there are art funds available, where you can pool your money along with other investors and invest in art. Some reputed art funds operating in India are Osian’s Yatra and Indian Fine Art Fund.
Indian Fine Art Fund is a 5 year closed-ended fund, with a minimum investment of Rs. 40 lakh. It is established by Phillip Hoffman, who also set up the The Fine Art Fund Group, based in UK. It allows Indians, both resident and non-resident and non-Indians to invest in Indian art.
However remember, art investment is a long term investment, due to high charges like commission, VAT and capital gains tax. Moreover, they invest in the art works by famous Indian artists, whose works are already very expensive. So all these charges add up and affect the final returns generated by your investment. Also ensure you always invest with funds registered with SEBI to avoid being swindled by unscrupulous funds.
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