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Colours of money

Colours of money

They add immense value to interiors, but in the long run they may become prized possessions fetching fancy returns.

Even a decade back no one would have believed that the prices of Indian art would shoot through the roof. Thanks to corporate and institutional involvement, art is set to graduate to the level of a credible asset class.While trade of paintings might still retain its place in the ‘alternative’ segment for some time, art funds have assured that changes in the price of brushstrokes will soon be monitored just about the same way as those of stocks.

Though it is the sale of a Tyeb Mehta for Rs 7 crore that still makes news, paintings worth Rs 50,000 are also appreciating smartly. Consequently, a section of urban middle class has begun to avidly pursue art as an investment. Renu Modi, director of Gallery Espace, attributes this trend to surplus money with young professionals, heightened awareness and of course a taste for quality art.

From a Rs 5 crore turnover in 1997–mostly rooted in the black economy, with little public or institutional interest and scant respect or publishing, archiving, purchasing or preserving art, it is now a Rs 1,000-crore strong market. For a layman, investing in art can be intimidating. It is best to research before jumping onto the bandwagon. The first question is when to invest and how much?

While there is no clear demarcation in terms of age profile, allocation to art should not exceed 5-10% of the financial portfolio (net worth). Says Sarin, wealth manager and founder partner, Client Associates, “As an asset class, art shares a poor correlation with traditional asset classes like equity and debt. Therefore, it is a good diversification and risk reduction play. From the returns point of view also, art should remain productive as the markets are still evolving.” Visiting art galleries, attending seminars, reading up art books and networking are some ways to pick up the nuances of trading in art.

Identifying a good painting requires expertise. Remember, there are no fixed parameters for judging the value of a painting. It is always difficult to put a price to artistic intangibles. Balancing creative integrity and financial valuations is a tedious task and though some indicators like Osian’s index—Square Inch Rate—exist, there is still a long way to go.

Once you are attracted to a particular work, research about the artist. Look up his other works, their prices at various auction houses and galleries and the expected appreciation in their value. And do check the origin. Also consider how long you wish to hold on to the painting. If it is a shortterm investment of say three to five years it is best not to take any risk and stick to marquee names.

If however you are willing to wait and hold on to the work, choose an upcoming artist whose price is likely to appreciate. As Bangalore-based businessman, Abhishek Poddar, 39, has always done. A collector from 19, Poddar was never bothered about the investment potential of his holdings as long as he liked what hung on his walls. But the owner of hundreds of paintings by famous as well as unknown artists does not shrug off the investment angle altogether. “One cannot completely overlook the investment options when putting in large sums of money to buy art,” he says.

However, Patu Keswani, promoter of Lemon Tree Hotels and an art investor for the past 10 years believes that a good painting automatically appreciates in value, irrespective of whether the artist is a big name in the circuit or not. He says, “I buy paintings which are aesthetically satisfying and not according to the signature they bear. My personal collection is worth about Rs 8 lakh and boasts painters such as Jatin Das as well as the lesser known Bratim Khan and Shekhar Roy.”

Cautions Modi, “Works of younger artists are high-risk, highreturn investments. This is because it is impossible to predict the artistic trajectory of a young painter whereas senior names have already established their oeuvre.” But young or old, famous or unknown, it is impossible to predict the fate of any artist’s work with complete accuracy. This is because the rate of appreciation of paintings differs according to their quality, theme, age and medium.

Despite this inherent ambiguity, Osian’s, a premier auction house in India, claims that an informed investment in art should fetch 22-25% post-tax annualised returns in the next five to 10 years. But returns can plunge if the paintings are not preserved well and protected from fungus, sunlight and other forms of wear and tear. While some people keep expensive paintings in bubble paper, others get it regularly cleaned. In case the painting starts peeling or the colour fades, investors must get it repaired by competent professionals.

Art enthusiasts need to guard against fakes. Buying artworks from reputed galleries and trusted sources reduces the risk as they guarantee authenticity by regularly evaluating their stocks through research, analysis of method and medium, individual techniques and styles as well as tracing the origin of the work.

And what if you wish to sell a painting and liquidate your holding? Again, the best bet is to approach galleries and auction houses. In case they are unable to buy a particular piece, they also direct you to interested individuals who would like to add such works to their collection. For those who want to rake in the returns from art without going into the nitty gritty of understanding it, there is the option of art funds. With art funds you don’t even need to pick up the pieces of art, thus relieving you the bother of storing them.

Art fund operators buy artworks of various artists, keep it with themselves and sell them at auction houses across the world at opportune time. Returns from the auction are then shared between the art fund and investors, according to pre-decided conditions. Four art funds—Yatra, Osian’s, Copal, Crayon Capital—have already entered the Indian market. These funds have prompted wealth advisors to include art as a preferred investment option to diversify portfolios.

But investors must be cautious as returns from these funds are not guaranteed and neither is the art fund monitored by any regulatory authority like Securities and Exchange Board of India.