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ART AS INVESTMENT
Art as an investment
Art can be a tempting investment, with its creative mystique and potential for soaring values. Whether your tastes are classic or avant-garde, art is a tangible commodity and, as with any commodity, many investors view it as a hedge against stock market volatility. But before you drop a bundle at a gallery or raise your bidding paddle at auction, understand that art comes with its own risks and expenses.The art market is complex, opaque and unregulated, making it difficult for all but the most experienced to navigate, and sound, unbiased advice is essential.
Aside from the added costs associated with maintaining art, there are the fickle tastes of buyers. "Art follows fashions and trends," says a modern day art expert. The popularity of various artists and periods fluctuate, so one year's “must-have” is another year's “Monet”.
Art is now being recommended as an investment avenue by advisers on account of its potential for appreciation. Art investing can be lucrative. "If you take a long view of art, many investors have reaped the benefits, but you have to buy right and know what you're buying."
There are of course commercial considerations that you need to take into account while investing in art.
Investing in art is the like investing in gold
Adding art to your portfolio could reap financial benefits in the long term, but you need to understand how it fits in with your other investments.
Investors shouldn't think of art as just another commodity, like gold, for instance. "It's much more nuanced than that," says Ashish Nanda, a private art advisor for art investors. "I tell clients it's the most opaque, illiquid and unregulated asset."
Given those limitations, Ashish counsels investors to take care of their liquid asset needs before buying art and to build a cash cushion for market downturns. In 2008 and 2009, collectors were selling what we call "phenomenal works of art" on the cheap in order to raise cash. That may be good for buyers, but it will put a major dent in your long-term portfolio if you're the seller.
Because art comes with so many investment risks, most likely you'll need specific advice from an expert. "Investing in art is much more complicated than people realize," Ashish says. "Just because you're talented in other areas of investing doesn't mean you'll excel in art."
Buyers Beware
How easy is it for an art-lover to walk into a gallery and buy a piece of art? "I wouldn't liken it to any other industry," says an art expert. There are a lot of variables to buying art. Whether or not you can negotiate prices, for instance, depends on the gallery, the popularity of the artist, the condition of the work and many other factors.
An art adviser can help navigate the purchase, but you need to do some research there, too, by making sure the adviser is one you can trust, with pricing that is transparent. Make sure he or she is only paid by you and not receiving fees from the seller.
Before you stroll into a gallery or art fair, take the time to educate yourself. Reading art publications, visiting galleries and attending events on art. "Get familiar with different periods and genres, talk to artists, visit galleries. Don't buy anything until you've researched the artist."
The cost of owning beauty
There are several costs associated with owning art that you won't have with other investments. They include regular appraisals, storage, insurance, maintenance, and auction or gallery fees.
Art is subject to all sorts of risks that affect its physical condition and if you want it to maintain its value, it has to stay pristine. And that involves costs. "Art is not like stocks and bonds that you can put in a bank safe," says Amitava our art advisor.
Taxation on Art
Can you say that a painting or a sculpture is a personal asset acquired for personal pleasure and, therefore, any gain that you make on the sale of such painting or sculpture is not taxable? This was indeed the position till 31 March 2007, when a painting or sculpture was not regarded as a capital asset. Therefore, any gains that one made on sale of such art was not subject to capital gains tax since only gains on the sale of a capital asset can be taxed. However, from 1 April 2007, the gain is no longer tax-free since the definition of capital asset has been amended to include paintings, sculptures, drawings, archaeological collections or any work of art.
If you hold the painting or sculpture for at least three years, the gains you make would be regarded as long-term capital gains. The gains would be computed by indexing the cost applying the cost inflation index and taxed at 20%, the effective rate being less than 20% of the actual gains on account of the cost indexation benefit. If you sell it within three years of acquiring it, the gains would be treated as short-term capital gains taxable at your normal tax slab rates.
The sales tax or value-added tax that you pay on the purchase of a work of art would also form part of your cost of acquisition for computing your capital gains. If you have bought an old painting and have spent on restoring it, can you claim the restoration cost as a deduction in computing your capital gains or as a normal expense? Such restoration cost would normally not be allowed as a deduction from your normal income, unless you earn income from the painting, such as by renting it to a gallery, in which case the amount could possibly be claimed as a deduction from such income. If you are unable to claim such expense, then at the time of sale, such restoration cost could be claimed as a cost of improvement if you are able to prove that the painting was in a damaged state when you acquired it, and by restoration, the value of the painting has been enhanced. The restoration cost, being a cost of improvement, would be eligible for indexation from the year in which it was incurred.
If you store a painting in a vault, can you claim the storage expenses as a deduction? Such storage expenses are actually expenses of holding on to the asset and do not contribute to the improvement of the asset or earning of income in any way. Such storage costs are, therefore, normally not allowed as a deduction either from normal income, or from the capital gains earned at the time of sale.
Any income earned while you own the painting, such as rent for allowing it to be displayed in an exhibition, or a fee for allowing it to be reprinted in a book, would be taxed as your normal income under the head “income from other sources”. Would the painting or sculpture be liable to wealth tax? Fortunately, till now, the definition of asset under the Wealth Tax Act does not include such paintings, sculptures or works of art, and, therefore, such assets are currently not subject to wealth tax. However, the Direct Taxes Code (DTC), which is to come into effect from April 2012 and is currently in the form of a Bill awaiting enactment, proposes to extend the levy of wealth tax to include archaeological collections, drawings, paintings, sculptures or any other works of art. Such assets would, therefore, be subject to wealth tax. How such assets are to be valued would be a major bone of contention as valuation of art can be highly subjective. As the saying goes: “Beauty lies in the eyes of the beholder.” Fortunately, the wealth tax limit is reasonably high at Rs1 crore.
Works of art would continue to be liable to capital gains tax under the DTC as all types of property, other than stock-in-trade, would be regarded as capital assets. The DTC also proposes to change the long-term capital gains tax rate to normal tax slab rates, though the benefit of cost indexation would be available if the asset has been held for at least one year from the end of the year in which the asset is acquired (instead of the current three years).
Investing, without owning, art
If you want to include art in your portfolio purely for investment purposes, without the challenges of owning a physical collection, consider an art fund. In such a fund, investors get much more diversification than they could from amassing a physical collection, according to Rabin, but they don't need to have all the expertise, or worry about storage, restoration, transportation, security and insurance issues.
There are different types of funds with diverse investing strategies. Some are opportunistic, with managers looking across the art world for any good investments. Others are more specific, specializing in certain periods, regions or artists. So, shop around for the one that is appropriate for your portfolio.
Be aware that art funds usually have no liquidity and long holding periods -- eight years is typical, says Ashish. In order for funds to gain returns from investments, the managers need the time to invest the assets and the choice to liquidate them over time. "In that respect they should be thought of more like a private equity fund than a mutual fund," he says.
Protect your investment
Art Insurance, a niche and modern concept globally, whose potential and need is being fast realized in India today, chiefly covers high value paintings and artifacts against all risk. And yes, as art is not merely limited to paintings, it also encompasses antiques, valuable property and furniture, porcelain, statues, sculpture, high-valued jewelry, collectibles like stamps, coins, clocks, watches etc.

India has produced $10 billion worth of art since Independence. A majority of this has surfaced only in the past few years. As art becomes more and more valuable, art insurance becomes a crucial. Also, as more and more Indians are looking at art as an investment, insuring art collections is definitely in order.

Art Insurance which has begun in pockets in India, indemnifies against physical loss or damage occurring during the period of insurance, while at the insured locations and within the insured territorial limits, subject to certain exclusions, basis of valuation acceptable to the insured and insurer, on the market value, conditions of the insurer and wordings offered.

But a good insurance company can do more than provide a policy. Representatives will come to your home and review where your paintings are installed -- for instance, over a working fireplace is a no-no because of the possibility of soot -- how they are hung and stored, and the general environment. Some works of art are susceptible to sunlight, but special glass coverings can help protect them. The company can also make suggestions about how to frame art and maintain it.
Maintain Art
Do you know about maintaining your collection of paintings?
Paintings made using fine oil paints on quality canvases can maintain their brightness and vivid colours for centuries. All the paintings that are sold through our website employ the same techniques and materials that were used by the great masters when creating some of their finest artworks. If treated with care, your oil painting can last and maintain its vivid colours for decades.
Canvas paintings, which are not protected by glass (except in some museum circumstances for preservation), require special consideration regarding handling and maintenance.

A few valuable tips will help you avoid making mistakes that might damage your oil painting, and will help you preserve it for many years as a keepsake.
1) Handling your art
An oil/ acrylic painting is a sturdy, long-lasting, and durable art form, and with proper care and handling, it will last for generations. A visit to any good museum will confirm this, but keep in mind that museums go to great lengths to safeguard their masterpieces.
  • Always handle an oil painting by the frame without touching the painted surface.
  • Dusting and cleaning your oil painting – It is recommended to dust and clean your oil paintings on a regular basis, using a clean dry cloth. Gently wipe off the dirt and dust, without putting too much direct pressure onto the surface.
Don’t spray or use any type of chemicals while cleaning your painting.
Tip - you can use compressed air, just make sure you don’t spray it from a short range since that my cause damage to the paint layers.
Never let any object press against either the front or back of an oil painting canvas, as it is pliable and doing this will cause a dent or hole. If an accident occurs, have an expert repair the damage. An amateur repair job may look okay at first, but given time will inevitably show.
For temporary storage or transporting an oil painting, place cardboard or plywood on both front and back (slightly larger than the outside dimensions of the framed oil painting) and then wrap in 'bubble wrap' and tape or tie securely.
Permanent storage should be in a custom-sized plywood container with the painting braced to allow airflow on all sides without shifting.
Moving and Handling
Never put any direct pressure or lay your painting with the canvas’ surface in direct contact with a sharp object.
Remember, any pressure on the canvas may change its original tension and cause damage to the thick layer of oil paints.
Make sure to cover and protect your oil painting when moving it or changing its position.
Never expose an oil painting to extremes of heat, cold, or humidity, whether hanging on your wall or in storage. Neither basements nor attics are good storage locations. The best place to store an oil painting is on the wall for all to enjoy.
Occasional dusting with a clean, soft-bristled brush is recommended. A very old or dirty oil painting should be taken to a professional restorer.
Storage Conditions
The most common damages to oil paintings are caused by inappropriate storage conditions. Remember extreme humidity, cold, or heat are potential hazards for your painting.Your living space, where you and your family spend time on a regular basis, will usually be perfectly suitable to keep your painting. Just make sure the painting is not positioned near a direct source of heat, damp or draft. The optimum ambient temperature for oil paintings is around 200 Celsius depending on small seasonal changes.
2) Hanging Your Oil Painting
Here is the fun part. Oil/ acrylic paintings, especially portraits, demand pride of place in your home. Involve your spouse or family in deciding the perfect location.
Hang your oil painting on two picture hooks which are appropriate to the wall (wood, plaster, drywall) and strong enough to secure the weight of the picture. Two hooks, rather than one, will allow the picture to maintain a horizontal position.
Choose a place for your painting that does not get direct sunlight or is subject to hot or cold drafts.
Hang high enough to be able to see the painting clearly from anywhere in the room. A spot over a mantelpiece or over a sofa (above head height of anyone sitting on the sofa) is usually ideal. Avoid hanging oil/ acrylic paintingsin hallways or on walls where there is frequent family movement or where furniture may be brushed against the wall.
If you have central heat or air-conditioning, that's great. If not, a rule of thumb is, if people are comfortable in the room your oil painting occupies, chances are your oil painting will be comfortable too.
Hanging an oil painting above the fire place is perfectly secure.