This is presentation being presented by Shivi Aggarwal, Radhika Gupta, Sweta Agarwal and Madhusudan Partani Students of FORE School of Management ( FMG-18). It evaluates Art and Colectables as Alternative Investment. Also covers the Participants, Valuation of Art, Insurance, Tax Aspects.....

1. What people Say The happiest collectors are those that motivated by the fun and enjoyment they derive from collecting. Like a picture, a painting speaks a thousand words and makes billions for the investor. "You can't avoid the art market these days if you're a sensible investor," said Mehul Patel, a 27-year-old Indian tech entrepreneur based in Singapore "Today, people aren't buying art out of conviction or pleasure, but because they see money in it," says DadibaPundole, a gallery owner So what do You Say ?

2. Alternative Art as an Investment Option

3. Members Madhu 91029 Shivi 91051 Radhika 91041 Sweta 91059 Group 2

4. Flow of Presentation… Facts & Acts Art Industry Why Invest in Art Costs in Art Investment Risks in Art Investment Participants Art Valuation and Appraisal Art Indices and Funds Taxes and Insurance Tips for Art Investment

5. World Wealth Report 2010- By Merrill Lynch and Cap Gemini The two categories that were most attractive to “investor-collectors” (HNWI) were Art and Other Collectibles (coins, antiques, wines, etc.) Luxury Collectibles (e.g., luxury automobiles, yachts, jets, etc.) continued to account for the largest portion of HNWIs’ investments of passion – 30% Overall,22% of HNWIs’ investments of passion were held in Artat the end of 2009, However, interest in Art is clearly picking up again in 2010. Art primarily as a financial investment, Art was the most likely of all such investments to be acquired for its potential to gain value

6. World Wealth Report 2010-By Merrill Lynch and Cap Gemini * Does not Real Estate which is included in the total estimated US$ 39 trillion

7. Karvy Private Wealth’s: India Wealth Report Global wealth in financial assets with High Net Worth Individuals (HNIs)1 at the end of December 2009 was US$ 39 trillion Total wealth in India held by individuals is estimated to be Rs.73lac crores 1. investable asset of US$ 1 million or more

8. CAGR of 25.4% Individual Wealth Forecast

9. Wealth Allocation 2009-10

10. India Vs Global Source: World Wealth Report 2010 and Karvy’s India Wealth Report

11. Masterpieces & Museum Quality Series VI- ET Intelligence Top 10 Results For Indian Contemporary Paintings, Drawings & Books Auctions-2006

12. The Antiquities And Art Treasures Act, 1972 Sec 2(1) ‘Antiquities’ - which have been in existence for not less than 100 years Viz., Sculptures in stone, terracotta, metals, ivory. Painting in paper, wood, cloth, skin etc Manuscripts Sec 2(2)“Art treasure” means any human work of art, not being an antiquity, declared by the Central Government by notification in the Official Gazette, to be an art treasure for the purposes of this Act having regard to its artistic or aesthetic value: Provided that no declaration under this clause shall be made in respect of any such work of art so long as the author thereof is alive

13. Sec 3: It is unlawful for any person, other than the Central Government or any authority authorized by Central Government to export antiquity or art treasure. Sec 5: Antiquities to be sold only under a licence. Sec 14: Any person who owns controls or is in possession of any antiquity shall register the same before the registering officer and should obtain a certificate. Sec 25 : If any person exports or attempts to export any antiquity or art treasure is liable for punishment for a term not less than 3 months which may extend to 3 years and with fine.

14. Art Industry The global art market is estimated at $23.5 billion, and more than half of it is in the US, considered the most-developed art market. The Indian art industry is estimated at about Rs 250 crore, and is expected to grow at 35per cent a year. Price increases of between two times and eight times in just the last three years for the works of artists like M.F. Husain, V.S. Gaitonde, SatishGujral and Tyeb Mehta . Today, people aren't buying art out of conviction or pleasure, but because they see money in it.

15. Indian Art With a 5000-year-old culture, Indian Art is rich in its tapestry of ancient heritage, medieval times, Mughal rule, British rule, Progressive art and now contemporary art Indian artists relied heavily on religious scriptures to draw inspiration Water colors, charcoal, vegetable dyes were popular methods of painting Stone and marble were also used to create art. One of the many purposes of art was to spread the word around about the king and glorify his deeds

16. Indian Art: History 2nd century BC: Ajanta ad Ellora Caves (Maharashtra) Mughal Art: bought the Persian influence in their artwork. Rajputana Art: Lord Krishna is depicted in many Rajputana paintings. The miniature paintings from the Rajputanas flourished Madhubani from Bihar, Tanjore from South,

17. Indian Art Modern Indian Art: Rabindranath Tagore, MF Hussain Raja Ravi Verma. Theme changed to Nature, portraits, were some of the themes artist chose. As artists started to express themselves, art galleries were needed to display their works. Art galleries appeared in Delhi and Mumbai only in the post sixties. The face of Indian Art was changing with times. The uniqueness of Indian Art still lies in its rich cultural heritage.

18. Why Art? To diversify your investment portfolio. High volatility of equity markets Art has attracted a lot of attention after the year 2000. Indian art is growing tremendously and breaking new trends of unprecedented appreciation due to excess liquidity in the economy It's not as volatile as stocks, gold and property, and is not affected as much by economic downturns — and, it provides the investor an aesthetic benefit, as well.

19. Collectables

21. Antique Weapons

22. Utensils

23. Perfumes

24. Furniture

25. Music Instruments

27. Long term Appreciation

28. Protection from Inflation

29. But, Unlike Art, No Regular Income

30. Illiquid market

31. Difficult to determine True Value

33. Risk Pyramid Where does Art lie? Which is Most Risky? Which is Safest?

34. Risk Pyramid

35. Risks/ Drawbacks Art is far less liquid than stocks: One can't simply push a button and sell a Picasso tomorrow: Illiquid Market The Indian art market is especially shallow, with relatively few buyers High Transaction Cost High Valuation cost and Require critical valuation

36. Risks/ Drawbacks High Maintenance cost leading to negative Income if not lent to galleries Galleries provide income but at cost of losing benefit of enjoying the art Price is dependent upon Bid of 1 or 2 bidders Art Index though proved returns of Art at par with that of other Financial Instruments, but the method of valuation has few serious inconsistency.

37. Participants in Art

39. Art market Primary Market where new art comes to the market for the first time Valuing will be more difficult here Secondary market existing art that has been sold at least once before Valuing will be less difficult

40. Art Valuation Art valuation, an art-specific subset of financial valuation, is the process of estimating the potential market value of works of artand as such is a financial rather than an aesthetic concern. Art valuation involves comparing data from multiple sources such as art auction houses, private and corporate collectors, curators, and specialized analysts to arrive at a value.

41. Factors affecting Pricing of artwork

42. You purchase a work of fine art from a gallery The owner assured you that the price you paid was based on an appraisal provided by the manager of the gallery. You go home feeling comfortable that the price you paid was accurate since it was based on the appraisal provided by the gallery. Is this comfort justified?

44. Regarding a clearly identified piece of art,

45. Prepared by a person with the necessary training and experience

46. Who is impartial and disinterested,

47. Stating an opinion as to the market value as of a given date, and

49. For tax purposes(charitable deduction, gift tax)

50. For insurance purposes(premiums are usually set and claims paid based on replacement value)

51. To obtain a loan secured by artwork

53. Value depends on external factors that are difficult to quantify.

54. Appraisals are only as good as the time period in which they are presented

56. Market Comparison Approach

60. Replacement Value Approach

61. Art Index Equity: NIFTY/SENSEX/Others Real Estate : RESSEX Inflation: CPI Commodity Price Indexes Diamond : IDEX Diamond Price Index Why is an Index reqd?

62. ET Art Index ET and Osian’s– Connoisseurs of Art world’s premier Archive on the Indian contemporary fine and popular arts For the fund managers and insurance companies, but also for investors (HNIs) Uses the transactions of artworks belonging to India’s leading 51 contemporary artists M.F. Husain, F.N..Souza, Tyeb Mehta, Akbar Padamsee, GaneshPyne, J. Swaminathan, J. Sultan Ali, 3 Tagores transaction value of these 51 artists comprise 88% of the total organized Indian art market Calculated on the basis of the average Square Inch Rate (S.I.R) of works The Liquidity and Historical Significance weights have been considered so as to arrive at the final index value

63. ET Art Index ET Art Index gave a return of 47.8% since it’s inception in January 1, 1998. From a level of 100 on December 31, 1997 the index value stood at 2513.1 on March 22, ‘06

64. ET Art Index ET Art Index gave a return of 47.8% since it’s inception in January 1, 1998. From a level of 100 on December 31, 1997 the index value stood at 2513.1 on March 22, ‘06

65. Mei Moses Fine Art Index Michael Moses and Jiangping Mei (New York University's Stern School of Business,) They take the original sales price and then subtract it from the most recent sales price at Christie's and Sotheby's in New York Most recent update shows, over the last 50 years, the art index returned 10.5 % p.a.

66. Mei Mosses – Art Index

67. Art Funds: Alternative to Art Investment People who are keen on investing in art can make their investments through Art Funds. These art funds in India basically operate like mutual funds, with people investing money in them and the fund manager purchasing art with the collected money. These art works are bought through exhibitions or directly from the possessors. The profits obtained from the sale of these art works are distributed amongst the investors.

68. The following are some of the major art funds currently operating in India: Osian’s Art Fund Crayon Capital Art Fund Yatra Art Fund Copal Art Fund The latest entrant, the Indian Fine Art Fund which is a $25 million fund, has invited investments starting from $100,000.

69. Wealth Management Services* for Art * OSIAN’s Wealth Management and Deutsche Bank Private Wealth Management

70. Tax At what stages Tax is attracted?

71. Tax on Purchase Art purchased in India Sales Tax(VAT) 12.5% Art purchased from outside India Import duty 14.712% Sales Tax(VAT) 12.5%

72. Pay for being Rich: Wealth Tax

73. Tax on Income from Art Any income earned from work of art such as rent for allowing it to be displayed in an exhibition, Fee for allowing it to be reprinted in a book Taxed as normal income under the head “income from other sources”.

74. Tax on Art as Gift Gift received during the year: paintings, sculptures or other works of art Aggregate value: exceeds Rs. 50,000 Also Includes any concession on Art exceeding Rs. 50,000. ( Deemed Gift) Subject to: Income tax Rate: Applicable tax slab

75. Tax on Sale Finance Bill 2007 amended scope of “capital assets” After 2007, “capital assets” also include Archaeological collections, Drawings, Paintings, Sculptures, Any work of art

76. Tax on Sale If held for 3 years or more LTCG Tax @20% Benefit of Indexation Base year April 1988 If held for Less than 3 years, STCG Tax @ relevant tax slab Cost of Improvement, Cost of restoration allowed as deductions. But Cost of storage is not allowed for deduction from taxable Gains

77. Art vs. Capital Market

78. Art Insurance

79. What is insured Collection of: drawings paintings Sculptures any work of art

80. Insurance Title Insurance Defective or lack of title Property Insurance Loss Fire damage Water damage Restoration cost on damage Theft

81. Title Insurance Need: lack of transparency Confidentiality of buyers and sellers No central registry for art transactions

82. Real Life Case Steven Spielberg, the movie producer and art collector, wanted a Norman Rockwell painting. He called the gallery he usually purchased art from and was told that a Rockwell was available. He purchased it for $700,000, took it home. Sometime later Spielberg was sued by the previous owner who claimed that the gallery was not at liberty to sell the work because it lacked the proper documentation. In point, Spielberg had defective title to the work, and as such, he did not legally own the Rockwell.

83. $700,000 Norman Rockwell painting Legal charges: $50,000 Court case

84. Cost vs. Benefits Cost Premium: 3%-7% of value of work One time cost Benefit Insured for defending against defective title in courtroom Insured the value of the work

85. Cost Vs Benefits Had Mr. Spielberg taken the insurance Cost: 7% of $700,000= $49,000 Benefit: Insured for $750,000 Value of the painting i.e., $700,000 Defending charges i.e., $50,000

86. Property Insurance Special attention to be paid on Risks to be covered: loss, theft, damage or destruction(due to fire, flood etc) Valuation clause of the policy: agreed upon value or market value in case of loss or theft A right of first refusal to repurchase the recovered artwork from the insurance company at a pre-negotiated price (i.e. the original value of the claim) Arbitration clause to adjudicate any disagreement on valuation after damage

87. Property Insurance Premium depends upon Geography: For e.g. Mumbai is more prone to floods than Delhi is. So more premium in Mumbai for insurance against floods Neighbourhood where the building is located The security and construction of the building where the artwork is stored Inherent fragility of piece of art

88. Exclusion The following may or may not be covered under property insurance Wear and Tear Inherent defect and breakdown Gradual deterioration Loss by insects or vermin Damage by atmospheric conditions Confiscation and War Breakage and non violent theft while home is being lent, let or sub let Radioactive contamination

89. Tips for Art Investment Buy the Art which you like. Having emotional Connect would mean less loss even in case if value falls Buy Lower priced Art( more room for growth) instead of Million Dollar Masterpieces Consider Growth Shares( Young Artists) along with Blue Chip ( Famous Artists) Only a small portion of Surplus to be invested in Art

90. Tips for Art Investment Know thy artist - Art buyers should know the history of the artist's work apart from the quality. Also check the 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. Last but not the least, buy art only if you like the quality of work and not just the artist. And take good care of your purchase. A work of art can never be replicated.

91. Thank You!