Investing in art needs some research

24 JUL, 2011, 10.11AM IST, NALINI S MALAVIYA,ET BUREAU

With reports in the media focusing primarily on the merits of investing in art and making it

appear as an attractive option for all investors, it raises a lot of questions for investors who are

attracted to art as a financial investment instrument. Art can undoubtedly give huge returns in

the long term, but there are many layers to it, which may not be immediately evident to nouveau

buyers, but are nevertheless present and hence require a healthy understanding of the workings

of the art market.

It is important to consider various aspects related to investing in art for instance, the risks

associated with it, its liquidity and also how it fares against other investment assets. It is

inadvisable to consider art from a purely financial investment angle; after all, it is one of the few

(such as antiques and collectibles) options which has a ‘decorative’ side to it. It would therefore

be rather inappropriate and superfluous to override the aesthetics and visual content of art.

One should consider investing in art only after allocating funds to conventional assets such as

stocks, real estate and gold. Also, consider art as a long-term proposition and keep in mind that

it may take some time to sell it off when necessary.

Most people who have made a lot of money through art are those who bought works at low

prices by artists who would have then gone on to establish themselves in a big way later on.

However, it is important to realize that not every artwork will appreciate considerably in the

future - prices are likely to increase with time corresponding with the artist’s career but not

all will show a significant change or a dramatic graph. This implies that the element of risk

is probably high when buying artworks priced in the lower bracket range. Art which is priced

higher and is done by established artists is a safer option in terms of investment, but requires

a larger outlay from your part. It is also essential that as a buyer or investor you have some

knowledge of art and understand the dynamics of the market to an extent.

(Published in Financial Times)