29 Jul 2008

Risks and returns in art investment

(Nalini S Malaviya)

Although, the art market cannot be directly compared with buying stocks, shares or mutual funds, there are a few similarities between them. In both the cases there is an element of risk involved and one needs to do a complete research before investing.
However, if one is buying art for its intrinsic value, then there is no risk attached and one can enjoy the artwork as long as they wish. However, when buying art for investment, the risk is linked to the investment cost and the projected returns.
Here too one can divide the investment portfolio according to the risk category and thereby distribute the risk factor.

The percentage of risk is highest when buying new and lesser-known artists. Investing in an artist who is well established and is doing well at international auctions also, is a safe option, however their prices may have already spiralled beyond the range of most investors. In such a case one can look at the next level of artists who are poised to hit the big league.
Having said that, the top category of senior artists is the safest option to invest in provided one’s budget has the flexibility. Next, one can also consider names that are performing consistently at international and domestic auctions and are associated with good quality works. Typically, this mid–segment bracket comprises of works of artists who are fairly established and are backed by an encouraging track record.

The high-risk segment would comprise works by promising artists who are in the process of getting established and are beginning to make a name for themselves. Investing in this group has the highest risk, but the returns can also be dramatic in the long term, provided the artist sustains himself and the Indian art market continues to grow at the present rate. In general, young artists who are promoted by credible art galleries are most likely to perform well in terms of their prices.

(Published in Financial Times)

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