Looking at the broader spectrum of art as an investment option

It seemed that the Indian art market boom would never end, but in spite of all the brouhaha it wasn’t going to last forever, as is the case with any asset class.

There are bound to be peaks and crests as part of an investment cycle, again testified by the 2008-09 meltdown that hit stock markets and realty world over. Art wasn’t going to be spared either. Amidst these upheavals that seem to have jolted the investors, won’t it be worthwhile to reflect on the essential characteristics of art as an investment option in the context of empirical evidence comparing its long-term financial returns versus other traditional asset classes?

This is exactly what art expert Nirmalya Kumar does in an elaborate essay (ToI; March 14, 2010). He elaborates as a collector on why anyone would purchase art. The professor (marketing) and co-director of the Aditya Birla India Centre, London Business School, is an avid art collector. He starts off by mentioning: “Compared to other asset classes, art has certain drawbacks as an investment vehicle.”

Which are they? According to him, if you need to sell the masterpiece you own, the art mechanics is such that no two individuals would agree on its ‘appropriate’ valuation. He points out that Indian art market is still shallow, with a relatively lower base of buyers. The expert advises to take into account the transaction costs while estimating profit margins. The maintenance cost of storage and insurance also need to be considered. He also notes that there is no underlying income stream unlike property, stocks and bonds in form of rentals, dividends or interest for owning that great work of art.

It is important to look at the broader spectrum of art as an investment option. Just remember, if you buy art, do so for love of it, and treasure your collection as a priceless piece of heritage for generations to come. Thus you will derive the maximum fulfillment and returns out of it over time.