Investing in art, wine and other tangible assets

A boy looks at paintings inside an art gallery in New Delhi October 8, 2005.

Instability in the financial markets is encouraging investors to look for alternative methods of investment. Some of the most popular alternative investments are art, stamps, gold, other commodities, wine, toys and books.

Of these, NRI favourites have to be art, fine wine and gold. We discuss these investments in detail:

Investing in Art

Art is being incorporated into the investor’s overall asset allocation decision. There are many ways of investing in art via auctions, online auctions, art gallery and online portals. A few things an investor must look into:

* Art buyers should gain as much knowledge as possible of the artist’s work, the quality, provenance, condition and period in which it was painted before investing.

* Have a clear idea about the time horizon and gestation period for a particular work to appreciate in value.

* If an investor is looking for quick returns, he must buy works of well-known artists. If you like a less famous artist’s work and are prepared to wait, your returns might grow majorly over a period of time.

* Buy art only if you like the quality of work and not just the artist. Art requires careful maintenance.

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Advantages and risks of investing in Art

Investing in art is a good method for diversification. Since art prices do not depend on other possible components of a portfolio, they act as a cushion when other markets are not doing well. The aesthetic pleasure of viewing a great piece of art is a great advantage.

Art works hardly depreciate in value hence proving to be a less risky investment. On the other hand, art prices are known to appreciate over a period of time and this is very advantageous.

Like all other investments, investing in art also has its downsides. Not anyone can invest in art. It requires a certain level of knowledge and expertise. The fact that they depend largely on public tastes and other factors, make them a fairly speculative investment.

Also art cannot be resold quickly for a profit. It also needs high level of maintenance, storage, security, and it doesn’t give dividends, bonuses or income.

Investing in Fine Wine

Fine Wine is another popular means of investment. Wine purchased as an investment is typically obtained from a reputable wine broker since wine houses do not generally sell directly to the public.

Advantages and Disadvantages of a Wine Investment

Those who favour wine investment offer many reasons why wine investment should be considered. Firstly, being a physical commodity, it is not affected by the stock market, company bankruptcies, fraudulent activities, major market shifts or even poor management.

Wine Investment provides legitimate ways of exemption from capital gains tax, VAT and import and export duties. Like other tangible investments, wine provides a good means to diversify a portfolio. Fine Wine increases in quality with time, hence its value continually increases.

There are several disadvantages as well. It is argued that Wine Investment Market is difficult to understand and analyse. Wines are not always priced based on their value, but on the basis of their demand, which in turn is dependent on several unstable factors. In order to store and preserve wines, investors tend to incur sizeable expenses.

Investing in Gold

Gold is regarded as the safest type of investment as its value is not affected by inflation, unlike other assets. Due to the rapid growth of the world economy and the uneven rise of geopolitics, there is a lot of uncertainty involved regarding other modes of investments and hence most businessmen these days believe that gold, or the yellow metal as it is often referred to, is the safest bet when it comes to investing.

Advantages and Risks of investing in Gold

Apart from being the most basic type of saving, gold is also an integral part of religious and social tradition, especially in India. It is the primary metal used for ornaments. Gold is indestructible. It does not smudge or stain and it does not get corroded by acid. Unlike currency, gold is not restrained by governmental obligations and hence transactions between different countries are easy.

It is advisable to buy gold in the form of gold bars or coins from approved dealers instead of jewellery. While selling ornaments, value is lost on making charges, waste removal and sales tax. It is not advisable to buy gold during wedding seasons or during festivals like Diwali. Also, when investing in a gold deposit scheme, one loses the making charges.

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