Tuesday, August 26, 2008

Art funds can make you rich!

Minna Kumar

Investing in an art fund is a way to become involved in the world of art without actually spending large sums of money on one particular art object and at the same time reap the benefits of an appreciating art market. However, one has to be careful about such investments. The fund must be professionally managed by individuals, experienced in buying and selling art. An established art gallery or auction house should back such a fund.
What exactly is an art fund and how does one go about investing in it? By definition, art funds essentially operate like mutual funds. People invest money in them and the fund manager buys art with this money.


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The funds are managed by professionals, trained in buying and selling art. They must also have a keen eye and good aesthetic sense.


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Usually, there's an annual appraisal of the art in each investor's portfolio to assess the investment's value. In the penultimate year, buying and selling takes place and the profits are distributed among investors.


Art as an investment
However, it is not wise to hand over your money to just any art fund manager. Once you have surveyed the art funds in the market, the next step is to find out the profile of the fund manager. Apart from assessing the reputation and expertise of the fund manager, one also needs to identify a fund, which is open to accepting investments, since most art funds are close-ended.

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Some example of established art funds in India are Osian's, Yatra, Copal Art, Crayon Capital and Indian Fine Art Fund. All of them are close-ended funds with lock-in periods of three-five years.
Given that fact that Indian art makes up only about 1 per cent of the global art market, there is tremendous scope for art funds to grow. However, this requires transparent and publicly accountable platforms, as daily trading in art is very difficult for individuals and institutions outside the inner circle of the art fraternity.


For example, given the high commission structures, i.e., 15-25 per cent on sale, 15-20 per cent on purchase, plus VAT charges if you are an unregistered dealer, plus capital gains tax, the individual trader needs to make more than 60 per cent before they see their first one per cent profit.


The Indian Fine Art Fund, a $25 million fund, has been the latest entrant into this market and has invited a minimum investment of $100,000.


Most art funds are concentrating on established Indian artists who have already made a name for themselves in the domestic and international market. However, in the near future, many funds are likely to be set up to deal in the works of upcoming artists.


Is investing in art funds and making it commercially viable taking away from its aesthetic appeal?


Most art lovers don’t think so. Instruments like art funds are only making art more accessible and popular. This is good for artists and collectors alike, as pieces of art will become more and more valuable over time. This will also make art more accessible to those who are afraid to venture into a field without themselves being part of the close-knit art fraternity.
Having said that, it would be advisable to follow the directive given by the Securities and Exchange Board of India (SEBI). Art lovers must invest only in funds formally registered with SEBI. The regulator has handed out a note of caution to various art funds saying that the launching or floating of art funds or schemes without obtaining registration from SEBI would amount to violation of SEBI Act and Regulations.

Some established art funds in India

1) Osian Art Fund - Osian's-Connoisseurs of Art Private Ltd, a leading archive and auction house, launched the first ever art fund in India in 2006. The Osian's Art Fund, worth over Rs 100 crore, oversubscribed within a few days. The close-ended fund has a lock-in period of 36 months. The purchase price per unit was Rs 100 and the minimum investment would be Rs 10 lakh. It was a new transparent option for high net worth individuals in the country, especially connoisseurs of art.


2) Yatra Art Fund was set up shortly after Osian’s by Edelweiss Capital. Buoyed by the success of their maiden launch, the second art fund was shortly after the first one. These funds are closed-end with a four-year maturity. The fund buys works directly from artists or through private or online auctions. On maturity, the fund will sell the works, again through auctions or to galleries. Investors have to commit a minimum of Rs 10 lakh in the first round. After six to eight months, when the initial monies are deployed, the next installment is collected.


3) Copal Art Fund: Soon to follow Osian’s and Yatra were the Copal Art Funds. After launching a series of funds worth Rs 10 crore each in 2006, Copal Art launched a Rs 150- crore fund, which offered unique features such as low entry level and easy exit route to invest in art with various investments options, flexible payment plans and an option to invest in paintings of one’s own choice with no lock-in period. The minimum investment in these funds stands at Rs 5 lakh, while the maximum amount goes up to Rs 2.5 crore, which is the highest investment by a single investor. The fund has a large chunk of corporate investors as well.

4) Crayon Capital Art Fund also came in November 2006 along with Copal Art. This Rs 40-crore art fund required a threshold investment of Rs 10 lakh and has a lock-in period of three years. Crayon Capital Art Fund-Scheme 1 would look at low risk and medium to high return with art critic Ela Dutt as advisor and Vadehra Art Gallery as lead source for buying and selling.


5) Indian Fine Art Fund – set up by Philip Hoffman — the founder of one of the largest international art fund management firm, the UK-based The Fine Art Fund Group unveiled the Indian Fine Art Fund with an initial corpus of $25 million. This is an international fund for Indian art. It raised funds through resident Indian, NRIs and other global investors. This is a 5-year closed-ended offshore fund. The minimum investment into the fund was $100,000 or about Rs 40 lakh.
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