Arts as Alternative Investment

8/8/2019 Arts as Alternative Investment

1/72

What people SayWhat people Say

peaks a thousand words and makes," ,a sensible investor said Mehul Patel a 27,

tion or pleasure but because they see moneyhat

motivated by the fun and enj

So what do You Say ?


2/72

Art as anArt as anInvestment OptionInvestment Option

AlternativAlternativ

ee


3/72

Madhu91029 Shivi91051 Radhika91041 Sweta91059

Members

Group 2


4/72

Flow of PresentationFlow of Presentation

Facts & Acts Art Industry Why Invest in Art

Costs in Art Investment Risks in Art Investment Participants Art Valuation and Appraisal

Art Indices and Funds Taxes and Insurance Tips for Art Investment


5/72

h e tw o ca te g o rie s th a t w e re m o st -ttra ctiv e to in v e sto r ( )o lle cto rs H N W I w e re rt a n dth e r C o lle ctib le s ( ,oins, , . )n tiq u e s w in e s e tc u x u r y C o l l e c t i b l e s ( . . ,g luxury, , , . )utomobiles yachts jets etcontinued to account for theargest portion of HNWIsnvestments of passion %0 ,verall %2 f HNWIs investmentsf passion ere held n A r t t, ,he end of 2009 However interestn Art is clearly picking up

.gain in 2010 rt primarily as a financial

World Wealth Report 2010- By Merrill Lynch and Cap Gemini


6/72

World Wealth Report 2010World Wealth Report 2010--By Merrill Lynch and Cap GeminiBy Merrill Lynch and Cap Gemini

* Does not Real Estate which isincluded in the total estimated US$

39 trillion


7/72

Karvy Private Wealths:Karvy Private Wealths:India Wealth ReportIndia Wealth Report

Global wealth in financialassets with High Net Worth

Individuals (HNIs)1 at the

end of December 2009 wasUS$ 39 trillion

Total wealth in India held by

individuals is estimated tobe Rs.73 lac crores

.1 investable asset of US$ 1 million or more


8/72

CAGRof254

Individual WealthIndividual WealthForecastForecast

in (Rs Crores) 2010-11 2011-12 2012-13

Individual Wealth-Beginning of the year 73,07,878 91,60,011 1,14,95,116

Return Generated on Invested Wealth 8,03,032 10,36,658 13,39,928

Financial Household Saving to be invested 10,49,101 12,98,448 16,05,490

Total Individual Wealth-End of Year 91,60,011 1,14,95,116 1,44,40,534


9/72

Wealth Allocation 2009-Wealth Allocation 2009-1010


10/72

India Vs GlobalIndia Vs Global

: Source World Wealth Report 2010 and Karvy s India Wealth

Report


11/72

,o p 1 0 R e s u l t s F o r I n d i a n C o n t e m p o r a r y P a i n t i n g s& -r a w i n g s B o o k s A u c t i o n s 2 0 0 6Artist/Author Title Price (Rs.)

Sher-Gil, Amrita Village Scene 69,000

Gaitonde, V.S. Untitled 48,875Varma, Raja Ravi Adaptation of the poem 'Veena nu Mrug'28,750

Souza, F.N. Nude 23,000

Padamsee, Akbar Nude in Grey 20,700

Swaminathan, J. Mountain & Bird Series 17,250

Husain, M.F. Subhe Banaras 16,100

Souza, F.N. Couple 16,100

Ramkumar Banaras Series 16,100

Dodiya, Atul Welcome 9,775

&Masterpieces Museum Quality-Series VI ET Intelligence


12/72

The Antiquities And ArtThe Antiquities And ArtTreasures Act, 1972Treasures Act, 1972

Sec 2(1) Antiquities - which havebeen in existence for not less than100 years Viz.,

Sculptures in stone, terracotta,metals, ivory.

Painting in paper, wood, cloth, skinetc

Manuscripts

Sec 2(2)Art treasure means anyhuman work of art, not being an

antiquity, declared by the CentralGovernment by notification in theOfficial Gazette, to be an arttreasure for the purposes of this Acthaving regard to its artistic or


13/72

Sec 3: It is unlawful for any person,other than the CentralGovernment or any authorityauthorized by Central Governmentto export antiquity or art

treasure. Sec 5: Antiquities to be sold only

under a licence.

Sec 14: Any person who owns

controls or is in possession of anyantiquity shall register the samebefore the registering officer andshould obtain a certificate.

Sec 25 : If any person exports orattem ts to ex ort an anti uit


14/72

Art IndustryArt Industry

The global art market is estimatedat $23.5 billion, and more thanhalf of it is in the US, consideredthe most-developed art market.

The Indian art industry is estimatedat about Rs 250 crore, and isexpected to grow at 35per cent ayear.

Price increases of between twotimes and eight times in just thelast three years for the works ofartists like M.F. Husain, V.S.

Gaitonde, Satish Gujral and TyebMehta .


15/72

Indian ArtIndian Art

With a 5000-year-old culture,Indian Art is rich in itstapestry of ancient heritage,medieval times, Mughal rule,British rule, Progressive artand now contemporary art

Indian artists relied heavily onreligious scriptures to draw

inspiration Water colors, charcoal,

vegetable dyes were popularmethods of painting

Stone and marble were also


16/72

Indian Art: HistoryIndian Art: History

2nd century BC: Ajanta adEllora Caves (Maharashtra)

Mughal Art: bought thePersian influence in theirartwork.

Rajputana Art: Lord Krishna is

depicted in many Rajputanapaintings. The miniaturepaintings from the

Rajputanas flourished


17/72

Indian ArtIndian Art

Modern Indian Art: RabindranathTagore, MF Hussain Raja RaviVerma.

Theme changed to Nature,portraits, were some of thethemes artist chose.

As artists started to expressthemselves, art galleries were

needed to display their works. Artgalleries appeared in Delhi andMumbai only in the post sixties.The face of Indian Art was

changing with times.


18/72

Why Art?Why Art?

To diversify your investmentportfolio.

High volatility of equity markets

Art has attracted a lot ofattention after the year 2000. Indian art is growing

tremendously and breaking

new trends ofunprecedentedappreciation due to excessliquidity in the economy

It's not as volatile as stocks,gold and property, and is notaffected as much by economic


19/72

CollectablesCollectables


20/72

What are Collectables?What are Collectables?

Stamps

Coins

Wine Face Lift

Candle Stand

Handicrafts Vintage Cars

B a g sa g s n tiq u e n tiq u eW e a p o n se a p o n sU te n silste n silsP e rfu m e se rfu m e sF u rn itu reu rn itu re u sicu sicIn stru m e n tsn stru m e n ts s ta te Je w e lrys ta te Je w e lry


21/72

Why CollectablesWhy Collectables

J ( )o b b y S e lf F u lfillm e n t( )o b b y S e lf F u lfillm e n tJ o n g te rm A p p re cia tio no n g te rm A p p re cia tio nJ ro te ctio n fro m In fla tio nro te ctio n fro m In fla tio nJ

L , ,But Unlike Art No Regular Income, ,But Unlike Art No Regular IncomeL Illiquid marketIlliquid market

L Difficult to determine True ValueDifficult to determine True ValueL Not for Pure InvestmentNot for Pure Investment


22/72

Types of cost in ArtInvestment


23/72

Risk PyramidRisk Pyramid

Where does Art lie? Which is Most Risky?


24/72

Risk PyramidRisk Pyramid


25/72

Risks/ DrawbacksRisks/ Drawbacks

Art is far less liquid thanstocks: One can't simplypush a button and sell a

Picasso tomorrow: IlliquidMarket

The Indian art market is

especially shallow, withrelatively few buyers

High Transaction Cost

High Valuation cost and


26/72

Risks/ DrawbacksRisks/ Drawbacks

High Maintenance cost leadingto negative Income if notlent to galleries

Galleries provide income butat cost oflosing benefit ofenjoying the art

Price is dependent upon Bid of1 or 2 bidders

Art Index though proved

returns of Art at par with


27/72

a rticip a n ts in A rta rticip a n ts in A rt


28/72


29/72

Art market

Primary Market where new art comes

to the market forthe first time

Valuing will bemore difficult

here

Secondary market existing art that

has been sold atleast once before

Valuing will beless difficult


30/72

Art Valuation

, -Art valuation an art specific subset, -Art valuation an art specific subset,of financial valuation is the process,of financial valuation is the process

of

of

estimating the potential market

estimating the potential marketvalue of works of artvalue of works of artand as such is aand as such is a

financial rather than an aestheticfinancial rather than an aestheticconcernconcern. Art valuation involves. Art valuation involves

comparing data from multiple sources

comparing data from multiple sources

,such as art auction houses private and,such as art auction houses private and, ,corporate collectors curators and, ,corporate collectors curators and

specialized analysts to arrive at aspecialized analysts to arrive at a

.value.value

F t ff ti P i i f


31/72

Factors affecting Pricing ofartwork

You purchase a work of fine artYou purchase a work of fine art


32/72

You purchase a work of fine artYou purchase a work of fine artfrom a gallery The owner assuredfrom a gallery The owner assuredyou that the price you paid wasyou that the price you paid was

based on an appraisal provided bybased on an appraisal provided by.the manager of the gallery You go.the manager of the gallery You gohome feeling comfortable that thehome feeling comfortable that theprice you paid was accurate sinceprice you paid was accurate since

it was based on the appraisalit was based on the appraisal.provided by the gallery.provided by the gallery

Is this comfort justified?Is this comfort justified?


33/72

Appraisal

proper appraisal of artwork:eans A signed written reportRegarding a clearly identified piece

,of artPrepared by a person with the

necessary training and experience Who is impartial ,and disinterested Stating an opinion as to the market

value ,as of a given date and Setting forth the facts and analysis

supporting the opinion


34/72

urpose of Appraisal To determine aTo determine a purchase or sales pricepurchase or sales price ForFor tax purposestax purposes( ,charitable deduction( ,charitable deduction

)gift tax)gift tax

ForFor insurance purposesinsurance purposes(premiums are(premiums areusually set and claims paid based onusually set and claims paid based on

)replacement value)replacement value

To

To

obtain a loan

obtain a loan

secured by artwork

secured by artwork

To satisfy the curiosity of the ownerTo satisfy the curiosity of the owner


35/72

ifficulties inifficulties inppraising Artworkppraising Artwork Original artwork is one of the mostOriginal artwork is one of the most

difficult things to valuedifficult things to value ValueValue depends on external factorsdepends on external factors

.that are difficult to quantify.that are difficult to quantify Appraisals are only asAppraisals are only as good as thegood as the

time periodtime period in which they arein which they arepresentedpresented

No cash flowsNo cash flows as in other assetas in other assetclassesclasses


36/72

asic Appraisal Methods


37/72

arket ComparisonApproach


38/72

ost Approach Not applicable to all artworks like

.in painting

Applicable where say the

value of an

artwork made of precious metals orgems depends largely on the raw

materials or in the case of

decorative arts where the cost of

manufacturer is the main factor indetermining its value


39/72

ncome Approachncome Approach Where the Where the ,artwork produces income,artwork produces income

such as artwork in the stock ofsuch as artwork in the stock ofsomeone in thesomeone in the business of rentingbusiness of renting

out artwork or a master image used toout artwork or a master image used toproduce signed and numbered prints orproduce signed and numbered prints or

commercial products such as posterscommercial products such as posters- .and t shirts- .and t shirts

Under this method theUnder this method the stream ofstream of

income is capitalizedincome is capitalizedand used as theand used as the

.basis for estimating value.basis for estimating value


40/72

ntuitive Approachntuitive ApproachThis approach is not officiallyThis approach is not officially

recognized by any of the majorrecognized by any of the major,appraisal organizations or the IRS but,appraisal organizations or the IRS but

.it is commonly used in the art world.it is commonly used in the art world


41/72

eplacement Valueeplacement ValueApproachpproach


42/72

Art IndexArt Index

Equity: NIFTY/SENSEX/Others

Real Estate : RESSEX

Inflation: CPI

Commodity Price Indexes

Diamond : IDEX Diamond PriceIndex

Why is an Index reqd?


43/72

ET Art IndexET Art Index

ET and Osians Connoisseurs of Art worlds premier Archive on the Indian

contemporary fine and popular arts

For the fund managers and insurancecompanies, but also for investors (HNIs)

Uses the transactions of artworksbelonging to Indias leading 51contemporary artists

M.F. Husain, F.N..Souza, Tyeb Mehta,Akbar Padamsee, Ganesh Pyne, J.Swaminathan, J. Sultan Ali, 3 Tagores

transaction value of these 51 artistscomprise 88% of the total organizedIndian art market

Calculated on the basis of the averageSquare Inch Rate (S.I.R) of works

The Liquidity and Historical Significanceweights have been considered so as to


44/72


ET Art Index gave a return of47.8%since its inception in January 1,1998. From a level of 100 onDecember 31, 1997 the index


45/72


ET Art Index gave a return of47.8% sinceits inception in

January 1, 1998. From a level of 100 on

M i M Fi A tM i M Fi A t


46/72

Mei Moses Fine ArtMei Moses Fine ArtIndexIndex

Michael Moses and JiangpingMei (New York University'sStern School of Business,)

They take the original salesprice and then subtract itfrom the most recent sales

price at Christie's andSotheby's in New York

Most recent update shows,

over the last 50 years, the


47/72

Mei Mosses Art IndexMei Mosses Art Index

A F d Al iA t F d Alt ti t


48/72

Art Funds: Alternative toArt Funds: Alternative toArt InvestmentArt Investment

People who are keen oninvesting in art can make theirinvestments through ArtFunds.

These art funds in Indiabasically operate like mutualfunds, with people investing

money in them and the fundmanager purchasing art withthe collected money.

These art works are bought

through exhibitions or directly


49/72

The following are some of the

major art funds currentlyoperating in India:

Osians Art Fund

Crayon Capital Art Fund Yatra Art Fund

Copal Art Fund

The latest entrant, the Indian

Fine Art Fund which is a $25million fund, has invitedinvestments starting from

W lth M tW lth M t


50/72

Wealth ManagementWealth Management

ServicesServices** for Artfor Art

* SIAN s Wealth Management and eutsche Bank Private Wealth Managem


51/72

TaxTax

At what stages Tax isattracted?


52/72

Tax on PurchaseTax on Purchase

Art purchased in India

Sales Tax(VAT) 12.5%

Art purchased from outsideIndia

Import duty 14.712%

Sales Tax(VAT) 12.5%

Pay for being Rich:Pay for being Rich:


53/72

Pay for being Rich:Pay for being Rich:Wealth TaxWealth Tax

At Present April 2012 onwards

Scope Paintings, drawings,sculptures not underwealth tax ambit

Paintings, drawings,sculptures underwealth tax ambit

Wealth Tax Limit Net wealth exceedingRs 30 lakhs

Net wealth exceedingRs 1 crore

Wealth Tax Rate 1% of taxable netwealth

1% of taxable netwealth


54/72

Tax on Income from ArtTax on Income from Art

Any income earned fromwork of art such as

rent for allowing it to bedisplayed in anexhibition,

Fee for allowing it to be

reprinted in a book

Taxed as normal income


55/72

Tax on Art as GiftTax on Art as Gift

Gift received during the year:paintings, sculptures orother works of art

Aggregate value: exceeds Rs.50,000

Also Includes any concession

on Art exceeding Rs. 50,000.( Deemed Gift)

Subject to: Income tax

Rate: Applicable tax slab


56/72

Tax on SaleTax on Sale

Finance Bill 2007 amended scopeof capital assets

After 2007, capital assets also

include Archaeological collections,

Drawings,

Paintings,

Sculptures, Any work of art


57/72

Tax on SaleTax on Sale

If held for 3 years or more LTCG Tax @20%

Benefit of Indexation

Base year April 1988

If held for Less than 3 years, STCG Tax @ relevant tax slab

Cost ofImprovement, Cost ofrestoration allowed asdeductions. But Cost of

storage is not allowed for


58/72

Art vs. Capital MarketArt vs. Capital Market


59/72

Art InsuranceArt Insurance


60/72

What is insuredWhat is insured

Collection of:

drawings

paintings

Sculptures

any work of art


61/72

InsuranceInsurance

Title Insurance Defective or lack of title

Property Insurance Loss

Fire damage

Water damage Restoration cost on damage

Theft


62/72

Title InsuranceTitle Insurance

Need: lack of transparency

Confidentiality of buyers andsellers

No central registry for arttransactions


63/72

Real Life CaseReal Life Case

Steven Spielberg, the movieproducer and art collector,

wanted a Norman Rockwell painting.He called the

gallery he usually purchased art fromand was told that aRockwell was available. He

purchased it for $700,000,

took it home. Sometime laterSpielberg was sued by theprevious owner who claimed that the

gallery was not atliberty to sell the work because it

lacked the proper


64/72

,$700 000

Norman Rockwell painting

Court caseLegal

:charges,$50 000


65/72

Cost vs. BenefitsCost vs. Benefits

Cost

Premium: 3%-7% of value ofwork

One time cost

Benefit

Insured for defending againstdefective title in courtroom

Insured the value of the work


66/72

Cost Vs BenefitsCost Vs Benefits

Had Mr. Spielberg taken theinsurance

Cost: 7% of $700,000=$49,000

Benefit: Insured for $750,000

Value of the painting i.e.,$700,000

Defending charges i.e.,


67/72

Property InsuranceProperty Insurance

Special attention to be paid on Risks to be covered: loss, theft,

damage or destruction(due tofire, flood etc)

Valuation clause of the policy:agreed upon value or market

value in case of loss or theft A right of first refusal to

repurchase the recovered

artwork from the insurancecompany at a pre-negotiatedprice (i.e. the original value ofthe claim)

Arbitration clause to adjudicate

any disagreement on valuation


68/72

Property InsuranceProperty Insurance

Premium depends upon Geography: For e.g. Mumbai is

more prone to floods than

Delhi is. So more premium inMumbai for insurance againstfloods

Neighbourhood where the

building is located The security and construction

of the building where theartwork is stored


69/72

ExclusionExclusion

The following may or may not becovered under propertyinsurance

Wear and Tear Inherent defect and breakdown Gradual deterioration Loss by insects or vermin Damage by atmospheric

conditions Confiscation and War Breakage and non violent theft

while home is being lent, let orsub let

Radioactive contamination


70/72

Tips for Art InvestmentTips for Art Investment

Buy the Art which you like. Having emotional Connect

would mean less loss even incase if value falls

Buy Lower priced Art( moreroom for growth) instead ofMillion Dollar Masterpieces

Consider GrowthShares( Young Artists) alongwith Blue Chip ( FamousArtists)


71/72

Tips for Art InvestmentTips for Art Investment

Know thy artist - Art buyersshould know the history of theartist's work apart from thequality. Also check the

provenance, condition andperiod in which it was paintedbefore investing.

Have a clear idea about the time

horizon and gestation periodfor a particular work toappreciate in value.

Last but not the least, buy artonly if you like the quality ofworkand not ust the artist.


72/72

Thank You!Thank You!

Arts as Alternative Investment

Documents

Transcript of Arts as Alternative Investment