Check authenticity and costs before buying art; keep allocation small
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar pointed out that art earns nothing while it is held and carries heavy transaction costs. He said a budget must cover fees, insurance and upkeep, and suggested keeping art to about 2 to 5 per cent of net worth.
What Abhishek Kumar said
Why should I be cautious about buying art as an investment?
In my view, the main drawback is that art produces nothing for as long as you hold it. There is no income while it hangs on your wall, and the costs of buying and selling a work are significant, so they eat into whatever gain you make on it. Art is also highly illiquid, which means you may not be able to sell it quickly when you need the money.
What should my budget for buying art cover?
I would set the budget so that it covers much more than the price of the work itself. It has to be large enough to pay the transaction fees, the insurance and the upkeep of the piece as well. At the same time, it should not end up putting too much of your capital into a single asset. If the budget cannot carry these extra costs, it is too small for this kind of buying.
How much of my net worth should go into art?
I suggest keeping art to a minor share of your wealth, typically around 2 to 5 per cent of your total net worth. Because art is an illiquid asset, a larger share would leave too much of what you own locked up in something that you cannot easily turn into cash.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on money management
The article looks at art as an alternative investment as India's secondary art market grows. It sets out why buyers are drawn to art and the main risks: market cycles, poor liquidity, high transaction costs, information gaps and fraud. It also covers checking provenance and title, setting a budget, long holding periods and costs such as auction premiums and insurance.
Publisher source
Check authenticity and costs before buying art; keep allocation small