On February 13, 2008, the Securities and Exchange Board of India (Sebi) issued guidelines to all art funds asking them to register with them or face criminal charges. Sebi, the market regulatory body, has in the interest of investors investing in art funds/schemes launched by any company or any entity formed for this purpose, asked them to register themselves first.

The reasoning behind this clamp down is that ?art funds? which are formed to collectively raise funds and invest in art comes under the purview of a ?collective investment scheme? (CIS) as defined under section 11AA(2) of the Sebi Act, 1992. As per section 12(1b) of this act, no person may sponsor or carry out on a collective investment scheme unless he obtains a certificate of registration from the board in accordance with the regulations.

As per regulation 3 of these Regulations, for an art fund, now a CIS to raise money, they must be recognised as a company that is registered with Sebi as a collective investment management company.

Currently, while no one is certain as to how many art funds are there in the country, some of the prominent ones that will now have to adhere to these new rules are The Osian?s Art Fund which raised Rs 102 crore, The Indian Fine Arts Fund started by the Fine Arts Fund Group valued at Rs 2.5 crore, Edelweiss?s Yatra Art Funds I & II valued at Rs 12 crore and Rs 22 crore respectively, the Kotak Art Fund worth Rs 25 crore, the Copal Arts fund and Crayon Capital?s art fund.

While this move will help people realise the growing value of art, how is Sebi going to judge the worth of art is another question all together. With the art industry soaring, art funds promising phenomenal returns and art now being considered a safe investment, especially to diversify and spread the risk in ones investment portfolio, it comes as no surprise that Sebi has finally put art funds under the scanner.

Sebi has also strictly warned all art funds in the present and for the future to register with them and comply by their rules, failing which they will face both criminal and civil charges as per the Sebi Act.

While the reaction to this move has been positive on most counts, there is a certain amount of apprehension as well, for while finance and art have always been poles apart, the current economic scenario has brought them closer than ever.