Modules for Investors
Alternate investment options in India outside of pureplay financial instruments
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Art and antiques
When Raja Ravi Varma first painted his famous artworks in the 17th century, he may never have predicted that over the course of the next few centuries, his works would be auctioned for crores of Indian rupees. But the truth remains that as of today, the famous Indian painters artworks have been auctioned several times, each time for a higher amount than earlier.
In fact, a Raja Ravi Varma painting was the talking point in a Sotheby’s auction in 2017, where the artwork was sold for Rs. 11.9 crores! And like art, antiques are also frequently auctioned for significant sums of money.
What does investing in art and antiques involve?
Investing in art and antiques involves buying famous works of art or dated antiques such as jewelry, coins, furniture, weapons or even simply antique glassware, china or serveware. Since art and antiques are so diverse in their very nature, valuation of these collectibles can be quite ambiguous. Nevertheless, there have always been investors interested in art, paintings and antiques, which are together referred to as passion assets.
Back in the day, investing in these collectibles or passion assets was primarily only something that High Net-worth Individuals (HNIs) engaged in. However, in recent years, as knowledge of finance and investing has spread, an increasing number of mass-affluent investors - or investors from the upper middle class - have started to display a great deal of interest in including such passion assets in their portfolio.
If you too have been contemplating the idea of investing in art and antiques, it is essential to get a good idea of the advantages as well as the risks involved in these alternative investment options.
What are the advantages of investing in art and antiques?
Investing in passion assets comes with some distinct advantages, which is why many investors are now gravitating towards this segment of investments. Check out the possible benefits of investing in art and antiques below.
Low correlation with the markets
Like most alternative assets, art and antiques have little to no correlation with the markets. So, these assets may continue to rise in value even if the markets are bearish. Because of this characteristic feature, art and antiques can offer your investment portfolio some much-needed cushion from market crashes.
Changes in government policies, quarterly results declared by companies and global economic forces can all result in a great deal of volatility in the markets. These factors, however, have negligible impact on the value of art and antiques in most cases. So, investing in collectibles and passion assets can protect your portfolio from the volatility that is associated with the markets.
Steady appreciation in value
Art and antiques are typically sold via auctions. The auction process itself relies on the principle of a steady appreciation in each successive bid. In addition to this, as the years pass by, an antique or a famous piece of art becomes more valuable, because of the time factor. So, if you purchase a piece of 100-year old antique furniture today, it will steadily appreciate in value over time. In case you need to or want to sell the asset at a later point in time, you can take advantage of the value appreciation to earn handsome returns.
What are the risks associated with investing in these alternate assets?
For all its upsides, investing in art and antiques is not without its risks. These risks are especially intensified if you are new to the collectibles market. So, it is always a good idea to be aware of the downsides.
Ambiguity about the right price
The art and antiques market is not regulated by any central authority. So, it may be difficult, particularly for new entrants into the market, to know the right price for a piece of art or a 500-year old collectible. In the case of a first-time sale, this may be particularly true because there is no benchmark to compare the sale price with.
Art and antiques are also low on liquidity, primarily because they are bought and held for the long term. So, if you hold an art or antique item and wish to sell it to meet an emergency financial requirement, you may find that challenging.
Potential for counterfeit assets
This is another major risk associated with collectibles and with passion investing in general. For retail investors who are not well-versed with the antiques market or have no in-depth idea of art and paintings, spotting a counterfeit asset can be practically impossible.
Things to keep in mind when investing in art and antiques
The risks and the downsides are almost equally balanced in the case of paintings and antiques. Nevertheless, you can still invest in these alternative assets, provided you have done your research and are aware of some key things, as discussed below.
It takes a great deal of patience and foresight
Investing in art, collectibles and antiques is an exercise in patience. You cannot directly jump into the market and make a purchase hastily. The process of purchase, whether via auction or direct buying, is lengthier and manual. In addition to this, you also need to understand what you are investing in, and have the foresight to analyze how the asset’s value will appreciate over the years.
These investments are best reserved for a later point in life
It is advisable to put off passion investing until you have checked off the other investments needed to meet your non-negotiable life goals. Unlike these tangible assets, financial assets such as stocks, bonds and other such can help you meet various financial goals with varying time horizons. And even when you do invest in these collectibles, limit their share in your portfolio to 10% or 20% at most.
Invest in art or antiques with a long-term horizon
You also need to keep in mind that these are assets that have a long-term horizon. The very nature of these investments coupled with their low or limited liquidity makes them less than ideal for meeting emergency financial needs. So, think of passion investing as a buffer in your portfolio that you can indulge in if you have the surplus funds for it.
As is evident from the details above, investing in art and antiques comes with high risks as well as potentially high rewards. This is why there are alternative investment options as opposed to being mainstream assets. If you do want to include them in your portfolio, remember to keep the pointers given above in mind. And if you are looking for more alternative assets to put your money on instead, head to the next chapter to learn about investing in wine and luxury items.
A quick recap
- Investing in art and antiques involves buying famous works of art or dated antiques such as jewelry, coins, furniture, weapons or even simply antique glassware, china or serveware.
- The upsides of such assets include low correlation with the markets, low volatility and a steady appreciation in value.
- On the downside, there is ambiguity about the right price, low liquidity and a potential for counterfeit assets.
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