Indian art hasn?t just made a guest appearance at world auctions, galleries and exhibitions. It has been ushered into these rarified circles time and again in the last few years. A handful of established artists have become gold mines and upcoming talent is ready to bask in the glorious days of the emerging Indian art markets.

Art funds emerged out of nowhere, and a nation whose art world was not world famous save for a few names now found its way into the spotlight. The number of art galleries have increased, the world?s biggest auction houses now showcase Indian artists, paintings are fetching crores of rupees. Now, even a slight daub of paint from a renowned Indian artist and not-so-well known names too on canvas catches the eye of the art markets, giving us as little as 1% of its share. While this number may seem measly, over a billion dollars are coming India?s way, which is no small feat. Art can no longer be shrugged away as not coming under the purview of an asset.

Art as an asset

Art being bought as an asset is however slightly different from when a person buys it as a collector or an enthusiast. This investment involves picking up pieces that will appreciate in value and provide a good defence against market downslides. Art is a very safe asset, the risks involved are minimal and the value of a painting will rarely reduce. However, one must realise that a lot of this is dependent on the entry price at which you get a piece of art.

Newcomers in the market should start by investing in gallery-recognised artists or upcoming artists as they will get the works at the entry price. One reason for doing this is that high-end paintings by established artists are sold at high prices, which could be more due to inflating prices rather than sensible valuation. As a result, once the artist or art market goes through a correction phase, the value of high-end overpriced paintings may reduce. However, the chances of it ever being drastically affected is rare. Stability is pretty much a given, and over the last few years concrete steps have been taken towards gaining people?s confidence.

If you own art now, you have to declare it as an asset for it is an asset class on its own. Secondly, while art funds have been slowly growing and increasing in number, Securities and Exchange Board of India (Sebi) getting involved and trying to formalise the art market is a big positive step for the industry. There has been one art index created in the world, the Mei Moses Fine Art Index, and India too is waiting to come out with its own art index, hoping to make this market transparent, easier and giving it the necessary boost. The art market is moving towards establishing itself as a serious investment, with all the things you look for in an asset.

While the overall picture is rosy and the future bright, it is wise to realise that there are some drawbacks with art as an asset. Since art is an expensive asset, it requires some amount of maintenance. One should insure it and keep it well protected against theft, fires and extreme temperatures. If this asset is well looked after, it always appreciates in value. The other key point is that selling art is not always an easy proposition, especially as this market is currently small. This asset is not liquid in nature. When one goes to auctions and galleries for help, the commissions charged are tremendous.

If you are still keen on dabbling in the art markets, do not despair. If you are a passionate art lover, make repeated trips to galleries, look at upcoming artists, affordable art, lithographs which are great entry points for you, till you get a feel of this market and are ready to invest more. If you are passionate about making money out of art, and are uncomfortable or unable to shoulder the risks, then art funds are the best options.

Art funds

An art fund is a fund created to collect money from investors, which is then used to purchase and sell art by the fund manager. The profits arising from these transactions are then distributed back to the investors, thus working like any other mutual fund.

Statistically speaking, an individual art owner would have to make a profit of over 60%, before he earns his first rupee from that investment. Hence, the popularity of art funds among art enthusiasts and high net worth individuals continue to grow. Most of the art funds in the country are in the Rs 20 crore-Rs 100 crore and even larger ones are already in the pipeline. These funds expect returns of 30%-40% annually and thus in a period of three to five years expect to give 150% to 200% return on your investment.

Keeping this in mind, art funds do seem very lucrative investments. Financial advisors and banks also advise you to invest about 5%-10% of your funds in art, as it provides a good and safe diversification option.

Art funds currently have a very small client base that is not comfortable dealing with the market in general. Most art funds target only the sophisticated investor who has some knowledge of what he is getting into. They also have minimum investment requirements, usually of Rs 10 lakh for a lock in period of three to five years. Thus while art funds do take care of many of your incidental expenses and liquidity problems of the asset, it is still by no means a cheap proposition. Therefore choosing a good fund manager is the key to making sure your fund fares well. Some of the current art funds in the market are Osian, Crayon Capital, Copal Art, Yatra and Edelweiss Securities. With ICICI and Dawnay Day AV planning to join this list, the art market will only get bigger and better.

Art, equity and global trends

Is the art market affected by the capital market? A question that many people have and to which most have come to their own conclusions. A little research into the matter shows the risk and return characteristics of art using art market indices, and the prospects for portfolio diversification in the art market using a variety of data across art market sectors, including the Old Master, European impressionist, modern and contemporary art markets.

Due to the low correlation of art with other asset classes, we find opportunities for portfolio diversification across art markets and across asset classes. The results hold, even allowing for the high transaction costs which are encountered when trading art, when spread over a longer time horizon.

Every expert in this industry will however deny views about art being an alternate investment class as it has no correlation to the other investment types. While this is inherently true, one must realise that the art market and indices, as well as the short term market movements have one thing in common, both are governed by people?s feelings, the social mood, fashions and trends of the moment. Thus there is a slight correlation between the two markets. Also, when the capital markets are bearish, most people focus on art as a good alternative investment opportunity. However this market is not sustained by in and out buyers as much by true art enthusiasts. Art enthusiasts on the other hand will invest more in art when the markets are bullish, their pockets are inflated and the economy is on the up. However, people will invest in art during both the up and down stages of the capital market. Though they do so for different reasons, both are related to the capital markets.

The global art market is said to be worth approximately $60 billion and is rising towards the $1 trillion mark. This is a huge industry that spans across every continent, culture and tradition. India has been making waves recently with Tyeb Mehta?s Mahisasura going for Rs 6.95 crore at the Christie?s auction in 2005. Then came M F Husain?s Mahabharata sale this year. The upward trend for Indian artists has since continued and many more artists have emerged on the global arena. While Indian art is catching on, current statistics show that majority of the buyers of Indian art are non-resident Indians and domestic buyers. Big American, European and Middle Eastern collectors are also starting to make forays into the Indian market.

China seems to have surged ahead of India with better marketing skills, well organised markets and high promotional activities with the result that Oriental artists have captured the imagination of many a European and American collector.

However with India looking to formalise its art market, and more people becoming aware of this, it will not be long before Indian art finds many more takers.