An Exploratory Study on the Factors Affecting the Acceptance of Art as an Alternative Form of Investment by the Potential Investors

 

Ms. Lakshmi B¹*, Aruthra R², Sanjay Sunny Otta²

¹Assistant Professor, Dept of Commerce, Christ University, Bengaluru

²MCOM Research Scholar, Christ University, Bengaluru

 

ABSTRACT:

Art is an asset that can offer exceptional return with diversification. But the lack of awareness about art investment has led the area to be unexplored. The objective of this paper is to provide an insight into the awareness level and the existing attitude about art investment in India. It also explores the reasons for the same through the ideas and opinions of the financial managers. The data was collected through self-structured questionnaire from 187 respondents and interview from financial experts. The interview of financial advisors gave few significant and useful insights into understanding the reasons for under-development and non-popularity of art investments among Indian potential investors.The data collected is analysed through Factor analysis and one way ANOVA. Five factors were obtained through Factor analysis. The five factors obtained are entry barriers, maintenance costs, market regulations and profitability, awareness and risk mitigation. ANOVA shows that investors of different age, place, and experience of investing, savings and gender do not differ in their perceptions towards the important factors for investing in art. India has a high potential for alternative investments and the financial investors can reap huge returns if invested in it.  The findings would help bring in awareness among the financial investors, including them in the art investment bracket with potential of huge returns.

 

 

INTRODUCTION:

The stagnant or usual performance of regular asset classes such as equities and bonds and the existing volatility in the economy for steep downturns has driven the need for emergence of robust alternative investments (Campbell and R.A.J, 2008). Art is one such class that can offer exceptional return potential with diversification (Roman and Christian, 2011). But, art is dominated by equity and other traditional assets as a financial asset (Benjamin, 2009).

 

Major researches conducted on this topic analyses the return and risk associated with art investment (Jianping and Michael, 2002). Model like capital asset pricing model was developed using methods like repeat sale regression to measure the nominal return associated with art, comparing it with the return of traditional assets (Benjamin, 2009 and Pesando, 1993). Annual art index and annual sub-indices were constructed using hedonic methodology to analyse the performance of art (Jianping and Michael, 2002 and Witkowska and Kompa, 2015). It was found that including art in the investment portfolio will benefit the investor in the long run (Jeffrey, 1996) and can be used as an investment strategy (Witkowska and Kompa, 2015). But the Indian mindset does not support investing in new forms of investment, creating a need to investigate the problems and obstacles associated with art investment. The objective of this paper is to provide an insight into the awareness level and the existing attitude about art investment in India and also explores the reasons for the same through the ideas and opinions of the financial managers.

 

LITERATURE REVIEW:

Art is defined as a luxury good, and a signal of wealth which has intrinsic value. It is a hybrid of consumption and investment. There is a dynamic demand for art which depends upon the income of the individuals. High income in the country is characterized by high price and return, when the economy is robust. There is a positive correlation between the demand of art and wealth of art collectors. Utility from art is derived by the value of possession of art and the expected capital appreciation of holding it in long-term. (Benjamin, 2009). Thus, art is considered as more of a glamorous investment and an investment opportunity (Witkowska and Kompa, 2015) than other fixed securities (Jianping and Michael, 2002).

 

Unlike securities market which is made up of fairly similar assets, the market of art comprises a group of very heterogeneous assets (Michael and Jeff, 1995), which are perfect substitutes for each other. Key players in the art market include auction houses, dealers, galleries, museums and private collectors (Roman and Christian, 2011). Art as an investment depends upon two factors- the number of buyers who are ready to buy the work when it is out for sale and the wealth of investors and institutions (William, 1993).

The return from art is impressive when compared to stock prices. The idea of yielding greater risk adjusted returns from diversification of art investment that offer low and negative correlation with traditional assets are quite attractive to the investors. The return from art is above inflation and is higher than government bonds. (Daiva and Jekaterina, 2012)It is insensitive to the macroeconomic and political changes in the economy. It is viewed as an area where the investor is likely to earn spectacular gains. It offers dividends in the form of personal enjoyment and is mentally challenging and pleasurable (Jane, 1998). It is an appropriate tool to hedge against inflation and is one of the safest investment markets (Daiva and Jekaterina, 2012).

 

But investment in art market is not straight forward like investing in bonds or equities. (William, 1993) Art market appears attractive only to a risk neutral investor who would choose it as a relatively volatile portfolio. It is an indirect investment and always advisable for the investor to decide an alternative vehicle or choose an art mutual fund for greater financial returns.(Campbell and R.A.J, 2008). Also, it is important to have an art advisor who is knowledgeable about industry standards and trends. Art market should be carefully examined, legacy must be studied and all other factors affecting the investment should be analysed before investing (Jane, 1998 and Daiva and Jekaterina, 2012).There are financial institutions equipped with art investment advisor experts who assist their customers in investing in art and yielding high return. But the lack of awareness about art investment and the absence of such financial art advisors and institutions have led the area of art investment unexplored in India. Research on this area might help bringing more potential investors under alternate asset investment bracket and could generate new inflows of capital into the art marketplace.

 

MATERIALS AND METHODS:

The data is collected from potential investors in and around South India. Sampling techniques used was judgemental sampling as it included respondents who included luxury commodities in their investment portfolio. Questionnaire was circulated among 400 potential investors but only 187 could be received. The response rate was 48.57%. Many investors were not completely aware of art as a form of investment and hence it was difficult to get the questionnaires filled. The researchers also collected relevant inputs from the portfolio managers. Personal face to face and telephonic interview was conducted. 15 portfolio managers all over South India were contacted to get information regarding their views and suggestions to popularise art as alternative investment.

 

A self-developed structured questionnaire was used for the survey. The questions involved demographic questions and reasons for investors not investing in art investment. The reasons included in the questionnaire were derived from a thorough literature review and excerpts from the interview conducted with the experts in the investment field. The filled questionnaire were tested for reliability through Cronbach alpha. The questionnaire consisted of total 30 items.

 

The Cronbach alpha for all the 30 items is 0.855. But when the questions related to demographic details of the respondents was removed the Cronbach alpha for the remaining 21 questions increased to 0.903. This shows that the items have relatively high internal consistency and that the scale is reliable. The validity of the questionnaire was done through pilot study and by getting the questionnaire modified by the experts in the field. A self-developed semi-structured questionnaire was used to help the data collection from experts in the field of investment under interview method.All statistical tests for reliability, validity and analysis were conducted using the statistical software package SPSS 20.0. An exploratory factory analysis was used to identify the factors leading to negative attitude of investors towards invest in art.

DEMOGRAPHIC PROFILE

DEMOGRAPHICS	CATEGORY	FREQUENCY	PERCENT
Age	20-30	65	34.75
	30-40	60	32.08
	40-50	22	11.76
	50-60	35	18.71
	60-70	05	2.67
	>70	00	0
	Total	187	100
Place of residence	Tamil Nadu	57	30.48
	Kerala	68	36.36
	Karnataka	53	28.34
	Andhra Pradesh	09	4.81
	Others	00	0
	Total	187	100
Gender	Male	100	53.47
	Female	87	46.52
	Total	187	100
Educational qualification	Schooling level	05	2.67
	Undergraduate	29	15.50
	Post graduate	84	44.91
	Professional courses	35	18.71
	Doctorate	25	13.36
	Diploma courses	09	4.81
	Total	187	100
Savings per annum	< 2 lakh	50	26.73
	2 lakh – 4 lakh	45	24.06
	4 lakh – 6 lakh	40	21.39
	>6 lakh	52	27.80
	Total	187	100
Years of experience in investing	0 – 3 years	61	32.62
	3 – 8 years	71	37.96
	8 – 12 years	23	12.29
	>12 years	32	17.11
	Total	187	100
Marital status	Married	135	72.19
	Unmarried	52	27.80
	Total	187	100

 

 

 

 

 

FACTOR ANALYSIS:

To identify the underlying reasons for investors not preferring to investment in art, an exploratory analysis was conducted. The principal component method was used with varimax rotation and Kaiser Normalisation. Items having factor loading 0.4 and above were included in the factors. Table 1 shows the results of sampling adequacy required for factor analysis. The Kaiser-Meyer-Oklin (KMO) is 0.855(greater than 0.5) and the chi-square value of Bartlett’s test of Sphericity is 1728.529 with significance lower than 0.05. These two values supports the conduct of factor analysis. The Varimax rotation converged in 10 iterations. Eigenvalues criterion was used to decide the number of factors. 5 factors emerged out the 21 items. All the items had factor loading greater than 0.4 and thus no item was dropped. The results of the factor analysis with component loadings and Cronbach alpha for each factor is given in table 1. The factors emerging out of the results are as under

 

 

 

 

 

 

 

 

 

 

 

 

Table1: Results of factor analysis

Factors	Short Description	Factor Loading	Mean	Cronbach’s Alpha	Cumulative Variance
Factor 1 Entry barriers	Minimum Amount Research Authenticity of Art Holding period Low Liquidity Mutual funds	0.813 0.678 0.650 0.586 0.555 0.493	3.31	0.831	34.877
Factor 2 Maintenance Costs	Return Insurance Maintenance Capital Appreciation Luxurious Good Tax Benefit Rate of Commission	0.703 0.649 0.626 0.590 0.555 0.547 0.472	3.239	0.795	45.524
Factor 3 Market regulations and profitability	Supply Guaranteed returns Regulated market	0.698 0.671 0.586	3.046	0.735	52.599
Factor 4 Awareness	Awareness Knowledge True Value of Art	0.829 0.751 0.579	2.804	0.769	58.152
Factor 5 Risk Mitigation	Speculation Hedging	0.740 0.714	3.142	0.690	63.042

 

FACTOR 1: ENTRY BARRIERS (Mean Value – 3.31, Cronbach’s Alpha – 0.831):

The principal component analysis conducted gave 5 factors. These 5 factors accounted for around 63% variance. The first factor was the constraints faced by the investors in investing in art. This factor comprises minimum amount, research required, authenticity, high holding period and low liquidity of art and mutual funds with a total factor load of 3.722 and34.877% of variance. These factors together represent the constraints affecting the art investment. It seems that potential investors are disinclined towards investing in art due to the above factors.

 

FACTOR 2: MAINTENANCE COSTS (Mean Value -3.239, Cronbach’s Alpha – 0.795):

This factor consists of returns associated with art, insurance of art products, maintenance cost, capital appreciation gained from art investment, perception of art only as a luxurious good, tax benefit received by investing in art and the rate of commission charged by auction houses. The total factor load is 4.14 and 10.647% of variance. It is observed that the investment factors have a huge impact on decisions made on art investment.

 

FACTOR 3: MARKET REGULATIONS AND PROFITABILITY (Mean Value – 3.046, Cronbach’s Alpha - 0.735):

This factor comprises of supply of art products, guaranteed returns from art and the presence of regulated art market. The factor loading was found to be 1.955. There was 7.074% variance. It is also observed that investors are reluctant to invest in art due to the lack of supply of good pieces of art, no guaranteed returns and absence of regulated art market in India.

FACTOR 4: AWARENESS (Mean Value – 2.804, Cronbach’s Alpha – 0.769):

This factor comprises of awareness about art investment, knowledge about the avenues of art investment and lack of evaluating true value of art. The factor loading is 2.159 and 5.554% of variance. This signifies that the potential investors are not completely aware about art investment.

 

FACTOR 5: RISK MITIGATION (Mean Value – 3.142, Cronbach’s Alpha – 0.690):

This factor comprises only the hedging and speculation aspects about art investment. The factor loading is 1.454 and 4.889% variance. It is observed that these risk mitigation factors cause hesitation among the potential investors to invest in art.

 

ANOVA:

The study has used one-way ANOVA as to see if the perceptions of financial investors are statistically significant among different age groups, gender, educational qualification, marital status, savings per annum, place and years of experience in investing.

 

HYPOTHESES:

H1: There is statistically significant difference in perceptions of importance of factors relating to investment in art across gender.

H2: There is statistically significant difference in perceptions of importance of factors relating to investment in art across age groups.

H3: There is statistically significant difference in perceptions of importance of factors relating to investment in art across geographical areas.

H4: There is statistically significant difference in perceptions of importance of factors relating to investment in art across different saving groups.

H5: There is statistically significant difference in perceptions of importance of factors relating to investment in art across investors with different years of experience in investing.

 

Table 2: Descriptive statistics across gender

		Male	Female	Total
FACTOR1 Entry barriers	Mean	3.340	3.126	3.241
	S.D	.9014	1.0093	.9565
FACTOR2 Maintenance costs	Mean	2.880	2.782	2.834
	S.D	1.1307	1.2145	1.1683
FACTOR3 Market regulations and profitability	Mean	3.200	3.356	3.273
	S.D	.7385	.9762	.8585
FACTOR4 Awareness	Mean	3.110	3.080	3.096
	S.D	1.1000	1.0141	1.0582
FACTOR5 Risk Mitigation	Mean	3.350	3.379	3.364
	S.D	1.0766	1.0143	1.0454

 

Table 3: Results of ANOVA of perceptions and gender

		Sum of Squares	Df	Mean squares	F	Sig
FACTOR1 Entry barriers	Between groups	2.122	1	2.122	2.336	.128
	Within groups	168.049	185	.908
FACTOR2 Maintenance costs	Between groups	.450	1	.450	.329	.567
	Within groups	253.411	185	1.370
FACTOR3 Market regulations and profitability	Between groups	1.137	1	1.137	1.547	.215
	Within groups	135.954	185	.735
FACTOR4 Awareness	Between groups	.041	1	.041	.036	.850
	Within groups	208.227	185	1.126
FACTOR5 Risk Mitigation	Between groups	.040	1	.040	.036	.849
	Within groups	203.233	185	1.099

 

Table 4: Descriptive statistics across age groups

		20-30	30-40	40-50	50-60	>60	Total
FACTOR1 Entry barriers	Mean	3.108	3.217	3.227	3.571	3.000	3.241
	S.D	1.0625	.9037	.8125	.8840	1.000	.9565
FACTOR2 Maintenance costs	Mean	2.585	3.083	2.864	2.943	2.200	2.834
	S.D	1.1844	1.1687	1.1253	1.1099	1.0954	1.1683
FACTOR3 Market regulations and profitability	Mean	3.246	3.333	3.273	3.200	3.400	3.273
	S.D	.9847	.8766	.5505	.7593	.8944	.8585
FACTOR4 Awareness	Mean	2.923	3.200	3.045	3.343	2.600	3.096
	S.D	1.0941	.9881	1.0901	1.0831	.8944	1.0582
FACTOR5 Risk Mitigation	Mean	3.123	3.583	3.545	3.286	3.600	3.364
	S.D	1.1389	1.0299	.8579	.9873	.5477	1.0454

 

Table 5: Results of ANOVA of perceptions and age

		Sum of Squares	Df	Mean squares	F	Sig
FACTOR1 Entry barriers	Between groups	5.307	4	1.327	1.465	.215
	Within groups	164.865	182	0.906
FACTOR2 Maintenance costs	Between groups	10.216	4	2.554	1.908	.111
	Within groups	243.645	182	1.339
FACTOR3 Market regulations and profitability	Between groups	0.532	4	0.133	.177	.950
	Within groups	136.559	182	0.750
FACTOR4 Awareness	Between groups	6.012	4	1.503	1.352	.252
	Within groups	202.256	182	1.111
FACTOR5 Risk Mitigation	Between groups	7.877	4	1.969	1.834	.124
	Within groups	195.396	182	1.074

 

Table 6: Descriptive statistics across geographical areas

		Tamilnadu	Kerala	Karnataka	Andrapradesh	Total
FACTOR1 Entry barriers	Mean	3.175	3.279	3.302	3.000	3.241
	S.D	1.0199	.9596	.9320	.7071	.9565
FACTOR2 Maintenance costs	Mean	2.895	2.868	2.774	2.556	2.834
	S.D	1.2633	1.1578	1.1205	1.0138	1.1683
FACTOR3 Market regulations and profitability	Mean	3.246	3.265	3.283	3.444	3.273
	S.D	.8920	.8572	.8853	.5270	.8585
FACTOR4 Awareness	Mean	3.070	3.176	3.057	2.889	3.096
	S.D	1.1628	1.0358	1.0080	.9280	1.0582
FACTOR5 Risk Mitigation	Mean	3.386	3.382	3.396	2.889	3.364
	S.D	1.1141	1.0226	1.0623	0.6009	1.0454

Table 7: Results of ANOVA of perceptions and place

		Sum of Squares	Df	Mean squares	F	Sig
FACTOR1 Entry barriers	Between groups	1.065	3	.355	.384	.765
	Within groups	169.107	183	.924
FACTOR2 Maintenance costs	Between groups	1.178	3	.393	.284	.837
	Within groups	252.682	183	1.381
FACTOR3 Market regulations and profitability	Between groups	.317	3	.106	.142	.935
	Within groups	136.774	183	.747
FACTOR4 Awareness	Between groups	.947	3	.316	.279	.841
	Within groups	207.321	183	1.133
FACTOR5 Risk Mitigation	Between groups	2.137	3	.712	.648	.585
	Within groups	201.136	183	1.099

 

Table 8: Descriptive statistics across different saving groups

		<2lakhs	2-4 lakhs	4-6 lakhs	>6lakhs	Total
FACTOR1 Entry barriers	Mean	3.080	3.200	3.275	3.404	3.241
	S.D	1.1578	.8944	.8161	.8913	.9565
FACTOR2 Maintenance costs	Mean	2.780	3.178	2.775	2.635	2.834
	S.D	1.3445	1.0507	1.0250	1.1552	1.1683
FACTOR3 Market regulations and profitability	Mean	3.080	3.422	3.300	3.308	3.273
	S.D	1.0270	.7830	.8228	.7551	.8585
FACTOR4 Awareness	Mean	3.080	3.378	3.000	2.942	3.096
	S.D	1.0850	1.1137	.9337	1.0556	1.0582
FACTOR5 Risk Mitigation	Mean	3.080	3.667	3.350	3.385	3.364
	S.D	1.0660	.9293	.9487	1.1402	1.0454

 

 

Table 9: Results of ANOVA of perceptions and savings

		Sum of Squares	Df	Mean squares	F	Sig
FACTOR1 Entry barriers	Between groups	2.797	3	.932	1.019	.385
	Within groups	167.374	183	.915
FACTOR2 Maintenance costs	Between groups	7.670	3	2.557	1.901	.131
	Within groups	246.190	183	1.345
FACTOR3 Market regulations and profitability	Between groups	2.956	3	.985	1.344	.261
	Within groups	134.135	183	.733
FACTOR4 Awareness	Between groups	5.183	3	1.728	1.557	.201
	Within groups	203.085	183	1.110
FACTOR5 Risk Mitigation	Between groups	8.185	3	2.728	2.559	.056
	Within groups	195.088	183	1.066

 

Table 10: Descriptive statistics across different experience groups

		0-3 years	3-8 years	8-12 years	>12 years	Total
FACTOR1 Entry barriers	Mean	3.098	3.324	3.261	3.313	3.241
	S.D	.8889	1.0389	.8100	.9980	.9565
FACTOR2 Maintenance costs	Mean	2.672	3.056	2.739	2.719	2.834
	S.D	1.1361	1.1325	1.2511	1.2243	1.1683
FACTOR3 Market regulations and profitability	Mean	3.131	3.380	3.217	3.344	3.273
	S.D	.9215	.8842	.7359	.7453	.8585
FACTOR4 Awareness	Mean	2.918	3.155	3.174	3.250	3.096
	S.D	1.0214	1.0092	.8869	1.3198	1.0582
FACTOR5 Risk Mitigation	Mean	3.344	3.268	3.435	3.563	3.364
	S.D	1.1088	1.1334	.8435	.8400	1.0454

 

Table 11: Results of ANOVA of perceptions and years of experience in investing

		Sum of Squares	Df	Mean squares	F	Sig
FACTOR1 Entry barriers	Between groups	1.902	3	.634	.690	.559
	Within groups	168.269	183	.920
FACTOR2 Maintenance costs	Between groups	5.740	3	1.913	1.411	.241
	Within groups	248.121	183	1.356
FACTOR3 Market regulations and profitability	Between groups	2.276	3	.759	1.030	.381
	Within groups	134.815	183	.737
FACTOR4 Awareness	Between groups	3.077	3	1.026	.915	.435
	Within groups	205.190	183	1.121
FACTOR5 Risk Mitigation	Between groups	2.060	3	.687	.624	.600
	Within groups	201.213	183	1.100

 

Table 12: Descriptive statistics across education groups

		School	UG	PG	Doctorate	Professional	Diploma	Total
FACTOR1 Entry barriers	Mean	2.800	2.793	3.238	3.240	3.629	3.444	3.241
	S.D	.8367	.8185	.9893	.8307	.9420	1.0138	.9565
FACTOR2 Maintenance costs	Mean	1.600	2.448	2.798	2.760	3.143	4.111	2.834
	S.D	.8944	1.1828	1.2201	.9695	.9745	.6009	1.1683
FACTOR3 Market regulations and profitability	Mean	3.400	3.172	3.262	3.320	3.286	3.444	3.273
	S.D	.8944	.8481	.9457	.8524	.7101	.7265	.8585
FACTOR4 Awareness	Mean	2.400	3.034	3.071	3.360	3.000	3.556	3.096
	S.D	.8944	.9443	1.0034	1.2207	1.2127	.7265	1.0582
FACTOR5 Risk Mitigation	Mean	3.400	2.966	3.405	3.920	3.057	3.889	3.364
	S.D	1.1402	1.0516	1.0879	.6403	.9983	.9280	1.0454

 

Table 13: Results of ANOVA of perceptions and education

		Sum of Squares	Df	Mean squares	F	Sig
FACTOR1 Entry barriers	Between groups	12.421	5	2.484	2.850	.017
	Within groups	157.750	181	.872
FACTOR2 Maintenance costs	Between groups	30.194	5	6.039	4.887	.000
	Within groups	223.667	181	1.236
FACTOR3 Market regulations and profitability	Between groups	.710	5	.142	.188	.967
	Within groups	136.381	181	.753
FACTOR4 Awareness	Between groups	6.548	5	1.310	1.175	.323
	Within groups	201.719	181	1.114
FACTOR5 Risk Mitigation	Between groups	18.255	5	3.651	3.572	.004
	Within groups	185.018	181	1.022

 

 

Table 14: Descriptive statistics across marital status

		Married	Unmarried	Total
FACTOR1 Entry barriers	Mean	3.343	2.981	3.241
	S.D	.9428	.9598	.9565
FACTOR2 Maintenance costs	Mean	2.978	2.500	2.834
	S.D	1.1403	1.1632	1.1683
FACTOR3 Market regulations and profitability	Mean	3.328	3.115	3.273
	S.D	.8206	.9425	.8585
FACTOR4 Awareness	Mean	3.157	2.942	3.096
	S.D	1.0750	1.0178	1.0582
FACTOR5 Risk Mitigation	Mean	3.396	3.288	3.364
	S.D	1.0334	1.0907	1.0454

 

Table 15: Results of ANOVA of perceptions and marital status

		Sum of Squares	Df	Mean squares	F	Sig
FACTOR1 Entry barriers	Between groups	4.981	2	2.491	2.774	.065
	Within groups	165.190	184	.898
FACTOR2 Maintenance costs	Between groups	11.928	2	5.964	4.536	.012
	Within groups	241.933	184	1.315
FACTOR3 Market regulations and profitability	Between groups	2.231	2	1.115	1.522	.221
	Within groups	134.860	184	.733
FACTOR4 Awareness	Between groups	1.732	2	.866	.771	.464
	Within groups	206.536	184	1.122
FACTOR5 Risk Mitigation	Between groups	.562	2	.281	.255	.775
	Within groups	202.710	184	1.102

 

The results of ANOVA shows that the perception of potential investors towards the various factors does not differ by age, gender, place, experience of investing and savings.  But we see significant difference of perceptions of potential investors of different educational background towards 3 factors that are entry barriers, maintenance costs, and risk mitigation. Tukey post hoc test revealed that people having professional courses find the entry barriers most important factor stopping them from investing in. Whereas the investors with diploma courses find maintenance costs as the important barrier compared other education background. Whereas doctorate holders find risk mitigation more significant factor influencing their decisions to invest in art.

 

Looking at anova results for marital status it can be seen that only for factor 2 – maintenance costs they differ in their perceptions. Married investors find maintenance costs most important barrier for investing in art than unmarried investors. Whereas perceptions towards other barriers are not statistically significant.

The interview of financial advisors gave few significant and useful insights into understanding the reasons for under-development and non-popularity of art investments among Indian potential investors. Few motivational factors identified by financial advisors are returns and fund management includes long terms goals such as marriage, education and retirement apart from liquidity. Any investment by a potential investor is return and need based. The current trend of investment is that they do not prefer investing in long return as they expect to enjoy the return in short duration. Some investors prefer a balanced strong portfolio with a mix of short and long term investments (Loury, 2005) and they continuously shift from one avenue to another when they sense saturation in their commodity. Investors prefer to maximize their wealth by investing in equities and look for alternatives through which they can earn huge profits with tax benefits.

 

Investing in various forms of art is still a distant dream for many. Such an investment is yet to capture wide dimensions. Often, while investing in art forms, expectation levels of the investors are not met. There is less profit in this area as investors perceive differently, the most difficult part being, identification of good piece of art with uniqueness, creativity and longevity. It is mandatory for an artist to copyright his contribution as duplications of the same are found at an increased rate. Recent trends show that India is a good place for investment in art forms, despite these difficulties. It is important to create an international opening for art. The benefits of it will positively impact India’s demand for artistic talent and appreciation. A wide growth of art as investment in India can be experienced only if requisite time is given for the same. Professionalism is lacking in art works whereas, amateurs in this field are found in large numbers. It is also found that only copies of art are circulated in India while authentic art pieces fail to reach the desired customers. As interests of people vary with time and developments, it is not easy to predict the demand for art forms and investments in such channels with precision. The hindrances faced for investing in art is that there is no proper asset allocation model and basis for calculating the return on investment. The absence of market trend and tracking prices creates a huge gap in identifying the value of art (Pesando, 1993). Adding on to this are the preservation and opportunity cost that comes with this investment causing the clients to invest in other investment avenues.

 

The high risk of destruction of the art pieces due to weather and humidity conditions, lack of proper storage facilities and appropriate methods of maintenance renders art as a form of investment by mutual funds less desirable. Also, the initial investment and maintenance costs of art being comparatively higher, makes it attractive only to High Net Worth individuals, particularly ‘ultra’ high net worth individuals. The process of wealth creation is extremely slow in art and no immediate goal can be achieved by investing in it. There is no proper valuation method for art. And, artists are discouraged from creating more pieces of art as their career depends on creativity and beauty which lies in the eyes of the beholder. Art is very subjective to individual perception as especially in case of abstract art, the painter has some deep-rooted meaning which he is bringing about in the form of the painting whereas this form of art can be appreciated by very few who are able to understand the painting in either the same manner or in similar terms. There are very few people who can understand and appreciate the creativity involved in abstract art as it depends upon heart, mind and environment of the individual. Beauty in art can mesmerize a buyer and such beauty can be understood only when the buyer is able to analysethe mind that lies in the beauty. Art can also be extremely controversial especially when religious iconography is involved, such as in paintings like The Last Supper, Piss Christ, etc.

 

Art is an illiquid asset and to achieve maximum return, re-sales must be timed precisely. Indians, especially women, prefer investing in gold as they can use it during the holding period as well as sell or exchange it or even use it as mortgage when the need arises. On the other hand, selling art during times of recession requires finding appropriate international market as investors decline to buy luxurious assets during negative economic growth. The mindset of Indians is such that they prefer viable assets, and there is a fear of investing their savings in art as it is not stable. The pricing of art is based on the demand for the art where it is trying to be sold. The higher the exposure of the art, the more prices it can fetch.

 

Financial advisors like mutual fund employees believe that including art in their portfolios makes it more complicated and the law does not allow for it. IRDA clearance is required as it may involve misuse of public money. Mutual Fund managers do not have any previous record of returns on art in Indian market to be displayed as proof to potential investors. Also, mutual fund managers claim that mutual fund market in India is not as functioning as in other countries, and thus including another risky form will only add to the problems in this investment avenue. Moreover, mutual fund schemes are controlled directly by the regulators and indirectly by the customers and thereby prior consent is required from these stakeholders before including any component in the portfolio. Convincing the customer to invest in art adds on to the burden of the mutual fund manager.

 

The market for paintings is highly disorganized and underdeveloped. This further discourages painters from developing better, commercially viable art pieces that are attractive to potential investors. There are no regulatory factors that deter mutual funds to include art in portfolios. Also the lack of such regulatory bodies for art increases the consequences of fraud which can result in the collapse of the entire industry. Government should take initiatives to create a regulatory body for auction of art as it is a challenge to control auctioning. Art is not listed in stock exchanges as it is difficult to determine values. Financial stability cannot be achieved as it is expectation and need- based.

 

The trends in investing are found to be as follows:

1995-2005 - People preferred investing in real estate as it was booming.

2005-2012 - Investment in gold was more prominent as real estate started saturating.

2012 onwards Equity market was the focus by the investors.

Therefore, mutual fund companies believe that this trend will move on to include art in the future.

 

WHAT DO FINANCIAL ADVISORS SUGGESTS?

A proper, regulated and structured market for art should be developed. This can be achieved only if all players of the art market evolve and participate actively in the field. Copyrights should be obtained by the artist to ensure that there are no duplicated copies. Advertising and marketing of art works should be done extensively to attract wider audience. Ratings for artists can be brought in to encourage the artists and improve professionalism among them. Though it is not possible to determine the value of the art, a model can be developed which can help predict the cash inflows from art in the future. Intermediaries should be avoided to restrict the over pricing of art and online bidding for the same should be encouraged. Huge demand and scope for art pieces can be developed by introducing financial art institutions with strong management in the country. Art should emerge as a sector in the economy which can be achieved only through increased awareness among the investors. Interest among the investors can be created though social media and newspapers. Recommendations and proposals can be made to SEBI and Government to analyse inclusion of such alternate assets in direct mutual fund portfolio. Previous records of art gains should be published in support of art investment. Market survey can be conducted to analyse the methods which can be adopted to ensure quick reach about art investment to the investors. Easy access to capital to invest in good pieces of art should be assured to those who are ready to invest in art. Investors can be attracted by showcasing the visibility of earnings through owning of art by art investors. Awareness programmes, exhibitions of art pieces, approach through corporate agents, individual distributors and B2B model can be used to attract the investors in short period of time. Hope and trust about art investment should be developed among the investors to make them feel that this is one of the safest investment avenues. Policy checks and balances such as paying by cheque, art insurance, documentation, choice of right art gallery and artists should be adopted. Purely one to one relationship method should be taken up to convince the customer about art investment.  Benefits of investing in art along with the opportunities in art market in the future can be highlighted to the investors. Investors are ready to look on the alternate form of investments only when they have surplus income. Hence, art should be marketed and introduced during the times of economy boom to create its own market.

 

CURRENT STATUS OF ART INVESTMENT IN INDIAN ECONOMY:

Art is a way of study and it requires indebted taste to appreciate it. Due to various factors, investors are reluctant to invest in art though it is a developing new field for investment. This is because of the reason that investors are hesitant to invest in emerging sectors (Strauss and Barron, 2012) and always prefer to invest in well proven or established businesses. It may take a decade or more for art to develop as a preferred field of investment. Indian mutual funds deal only with secondary market and have not yet penetrated into the economy and investor’s mind deeply for investment purpose. Mutual funds still have a large amount of unleashed market of potential for them with only 7% penetration in the economy(8.5% after demonetization), covering only 4-5% of the nation’s GDP. They expect to double their industry by 2030 and think that art market would have developed by then. At present, they do not even deal with commodity investment in their portfolio, spilling a tough thought of including art. Indian art market forms a small fraction of 0.4% when looked from global perspective and is valued between 150-200 million dollars whose value was only 8.5 million dollars before a decade. Indian art market is expected to grow at a rate of 15% in the upcoming years (globally 20%) with 500% appreciation every ten years. Indian art market is among the top four growing art markets in the world. But with the Indian mind set, art can catch up on the market only in the next generation period, possibly after 15-20 years.

 

Since art investment is not penetrated and preferred by investors, some mutual fund companies are not ready to include art in their portfolio. Mutual fund companies prefer to allot 5-10% in their portfolio for art investment. Including art will definitely not help in increasing the overall return of the portfolio, but will help in diversification. They feel that other alternative asset classes like wine collection, rare metal coins, stamps, antique products, vintage books, classic cars, apparels of famous people or any other genuine and limited-edition products have high chances of catching up on the investment vehicle in the near future.

 

FINDINGS:

Five factors emerged from the principal component analysis that the investors feel important to invest in art. The factors include entry barriers, maintenance costs, market regulations and profitability, awareness and risk mitigation with entry barriers emerging as the most important factor explaining around 35% variance. ANOVA shows that investors of different age, place, experience of investing, savings and gender do not differ in their perceptions towards the important factors for investing in art. People having professional courses find the entry barriers most important factor stopping them from investing in. Whereas the investors with diploma courses find maintenance costs as the important barrier compared other education background. Whereas doctorate holders find risk mitigation more significant factor influencing their decisions to invest in art. Married investors find maintenance costs most important barrier for investing in art than unmarried investors. Whereas perceptions towards other barriers are not statistically significant. More number of art trust funds need to be created. Efforts should eb made to regulate the art market, if possible include art in mutual fund portfolio.

 

CONCLUSION:

The demand for art investment is high globally, but the same lacks importance as an investment avenue in India. If adequate measures are taken to enlarge and open up a new, lubricant art market to make it much mature, the opportunity for making art as a globally tradable asset can be exercised. Though art cannot certainly replace traditional assets, they can serve as a valuable complement for long term investors in the context of a well-diversified investment portfolio (Dianne and Philip, 2008) as the true potential of Indian art is waiting to be unlocked.

 

MANAGERIAL IMPLICATIONS:

The findings would help bring in awareness among the financial investors about art as an alternative form of investment with potential of huge returns. The financial advisors can look at these options to increase their portfolio returns. Regulatory bodies need to bring in regulations and include art in the regulated market. The pricing of art and authentication of art pieces has to be standardised. Market survey can be conducted to analyse the methods which can be adopted to ensure quick reach about art investment to the investors. Easy access to capital to invest in good pieces of art should be assured to those who are ready to invest in art. Investors can be attracted by showcasing the visibility of earnings through owning of art by art investors. Awareness programmes, exhibitions of art pieces, approach through corporate agents, individual distributors and B2B model can be used to attract the investors in short period of time. Hope and trust about art investment should be developed among the investors to make them feel that this is one of the safest investment avenues. Policy checks and balances such as paying by cheque, art insurance, documentation, choice of right art gallery and artists should be adopted. Purely one to one relationship method should be taken up to convince the customer about art investment.  Benefits of investing in art along with the opportunities in art market in the future can be highlighted to the investors. Investors are ready to look on the alternate form of investments only when they have surplus income.

 

SCOPE FOR FURTHER RESEARCH:

The study was confined to south Indian investors. Hence the findings cannot be generalised to large extent. Further research needs to be undertaken with larger sample size and across country. Further a Confirmatory Factor Analysis could be undertaken to confirm the factors.

 

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Received on 05.10.2017          Modified on 11.11.2017

Accepted on 04.02.2018           ©A&V Publications All right reserved