Arts as Alternative Investment
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Transcript of Arts as Alternative Investment
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What people SayWhat people Say
peaks a thousand words and makes," ,a sensible investor said Mehul Patel a 27,
tion or pleasure but because they see moneyhat
motivated by the fun and enj
So what do You Say ?
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Art as anArt as anInvestment OptionInvestment Option
AlternativAlternativ
ee
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Madhu91029 Shivi91051 Radhika91041 Sweta91059
Members
Group 2
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Flow of PresentationFlow 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
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h e tw o ca te g o rie s th a t w e re m o st -ttra ctiv e to in v e sto r ( )o lle cto rs H N W I w e re rt a n dth e r C o lle ctib le s ( ,oins, , . )n tiq u e s w in e s e tc u x u r y C o l l e c t i b l e s ( . . ,g luxury, , , . )utomobiles yachts jets etcontinued to account for theargest portion of HNWIsnvestments of passion %0 ,verall %2 f HNWIs investmentsf passion ere held n A r t t, ,he end of 2009 However interestn Art is clearly picking up
.gain in 2010 rt primarily as a financial
World Wealth Report 2010- By Merrill Lynch and Cap Gemini
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World Wealth Report 2010World Wealth Report 2010--By Merrill Lynch and Cap GeminiBy Merrill Lynch and Cap Gemini
* Does not Real Estate which isincluded in the total estimated US$
39 trillion
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Karvy Private Wealths:Karvy Private Wealths:India Wealth ReportIndia Wealth Report
Global wealth in financialassets with High Net Worth
Individuals (HNIs)1 at the
end of December 2009 wasUS$ 39 trillion
Total wealth in India held by
individuals is estimated tobe Rs.73 lac crores
.1 investable asset of US$ 1 million or more
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CAGRof254
Individual WealthIndividual WealthForecastForecast
in (Rs Crores) 2010-11 2011-12 2012-13
Individual Wealth-Beginning of the year 73,07,878 91,60,011 1,14,95,116
Return Generated on Invested Wealth 8,03,032 10,36,658 13,39,928
Financial Household Saving to be invested 10,49,101 12,98,448 16,05,490
Total Individual Wealth-End of Year 91,60,011 1,14,95,116 1,44,40,534
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Wealth Allocation 2009-Wealth Allocation 2009-1010
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India Vs GlobalIndia Vs Global
: Source World Wealth Report 2010 and Karvy s India Wealth
Report
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,o p 1 0 R e s u l t s F o r I n d i a n C o n t e m p o r a r y P a i n t i n g s& -r a w i n g s B o o k s A u c t i o n s 2 0 0 6Artist/Author Title Price (Rs.)
Sher-Gil, Amrita Village Scene 69,000
Gaitonde, V.S. Untitled 48,875Varma, Raja Ravi Adaptation of the poem 'Veena nu Mrug'28,750
Souza, F.N. Nude 23,000
Padamsee, Akbar Nude in Grey 20,700
Swaminathan, J. Mountain & Bird Series 17,250
Husain, M.F. Subhe Banaras 16,100
Souza, F.N. Couple 16,100
Ramkumar Banaras Series 16,100
Dodiya, Atul Welcome 9,775
&Masterpieces Museum Quality-Series VI ET Intelligence
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The Antiquities And ArtThe Antiquities And ArtTreasures Act, 1972Treasures Act, 1972
Sec 2(1) Antiquities - which havebeen in existence for not less than100 years Viz.,
Sculptures in stone, terracotta,metals, ivory.
Painting in paper, wood, cloth, skinetc
Manuscripts
Sec 2(2)Art treasure means anyhuman work of art, not being an
antiquity, declared by the CentralGovernment by notification in theOfficial Gazette, to be an arttreasure for the purposes of this Acthaving regard to its artistic or
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Sec 3: It is unlawful for any person,other than the CentralGovernment or any authorityauthorized by Central Governmentto 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 anyantiquity shall register the samebefore the registering officer andshould obtain a certificate.
Sec 25 : If any person exports orattem ts to ex ort an anti uit
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Art IndustryArt Industry
The global art market is estimatedat $23.5 billion, and more thanhalf of it is in the US, consideredthe most-developed art market.
The Indian art industry is estimatedat about Rs 250 crore, and isexpected to grow at 35per cent ayear.
Price increases of between twotimes and eight times in just thelast three years for the works ofartists like M.F. Husain, V.S.
Gaitonde, Satish Gujral and TyebMehta .
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Indian ArtIndian Art
With a 5000-year-old culture,Indian Art is rich in itstapestry of ancient heritage,medieval times, Mughal rule,British rule, Progressive artand now contemporary art
Indian artists relied heavily onreligious scriptures to draw
inspiration Water colors, charcoal,
vegetable dyes were popularmethods of painting
Stone and marble were also
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Indian Art: HistoryIndian Art: History
2nd century BC: Ajanta adEllora Caves (Maharashtra)
Mughal Art: bought thePersian influence in theirartwork.
Rajputana Art: Lord Krishna is
depicted in many Rajputanapaintings. The miniaturepaintings from the
Rajputanas flourished
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Indian ArtIndian Art
Modern Indian Art: RabindranathTagore, MF Hussain Raja RaviVerma.
Theme changed to Nature,portraits, were some of thethemes artist chose.
As artists started to expressthemselves, art galleries were
needed to display their works. Artgalleries appeared in Delhi andMumbai only in the post sixties.The face of Indian Art was
changing with times.
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Why Art?Why Art?
To diversify your investmentportfolio.
High volatility of equity markets
Art has attracted a lot ofattention after the year 2000. Indian art is growing
tremendously and breaking
new trends ofunprecedentedappreciation due to excessliquidity in the economy
It's not as volatile as stocks,gold and property, and is notaffected as much by economic
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CollectablesCollectables
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What are Collectables?What are Collectables?
Stamps
Coins
Wine Face Lift
Candle Stand
Handicrafts Vintage Cars
B a g sa g s n tiq u e n tiq u eW e a p o n se a p o n sU te n silste n silsP e rfu m e se rfu m e sF u rn itu reu rn itu re u sicu sicIn stru m e n tsn stru m e n ts s ta te Je w e lrys ta te Je w e lry
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Why CollectablesWhy Collectables
J ( )o b b y S e lf F u lfillm e n t( )o b b y S e lf F u lfillm e n tJ o n g te rm A p p re cia tio no n g te rm A p p re cia tio nJ ro te ctio n fro m In fla tio nro te ctio n fro m In fla tio nJ
L , ,But Unlike Art No Regular Income, ,But Unlike Art No Regular IncomeL Illiquid marketIlliquid market
L Difficult to determine True ValueDifficult to determine True ValueL Not for Pure InvestmentNot for Pure Investment
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Types of cost in ArtInvestment
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Risk PyramidRisk Pyramid
Where does Art lie? Which is Most Risky?
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Risk PyramidRisk Pyramid
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Risks/ DrawbacksRisks/ Drawbacks
Art is far less liquid thanstocks: One can't simplypush a button and sell a
Picasso tomorrow: IlliquidMarket
The Indian art market is
especially shallow, withrelatively few buyers
High Transaction Cost
High Valuation cost and
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Risks/ DrawbacksRisks/ Drawbacks
High Maintenance cost leadingto negative Income if notlent to galleries
Galleries provide income butat cost oflosing benefit ofenjoying the art
Price is dependent upon Bid of1 or 2 bidders
Art Index though proved
returns of Art at par with
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a rticip a n ts in A rta rticip a n ts in A rt
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Art market
Primary Market where new art comes
to the market forthe first time
Valuing will bemore difficult
here
Secondary market existing art that
has been sold atleast once before
Valuing will beless difficult
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Art Valuation
, -Art valuation an art specific subset, -Art valuation an art specific subset,of financial valuation is the process,of financial valuation is the process
of
of
estimating the potential market
estimating the potential marketvalue of works of artvalue of works of artand as such is aand as such is a
financial rather than an aestheticfinancial rather than an aestheticconcernconcern. Art valuation involves. Art valuation involves
comparing data from multiple sources
comparing data from multiple sources
,such as art auction houses private and,such as art auction houses private and, ,corporate collectors curators and, ,corporate collectors curators and
specialized analysts to arrive at aspecialized analysts to arrive at a
.value.value
F t ff ti P i i f
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Factors affecting Pricing ofartwork
You purchase a work of fine artYou purchase a work of fine art
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You purchase a work of fine artYou purchase a work of fine artfrom a gallery The owner assuredfrom a gallery The owner assuredyou that the price you paid wasyou that the price you paid was
based on an appraisal provided bybased on an appraisal provided by.the manager of the gallery You go.the manager of the gallery You gohome feeling comfortable that thehome feeling comfortable that theprice you paid was accurate sinceprice you paid was accurate since
it was based on the appraisalit was based on the appraisal.provided by the gallery.provided by the gallery
Is this comfort justified?Is this comfort justified?
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Appraisal
proper appraisal of artwork:eans A signed written reportRegarding a clearly identified piece
,of artPrepared by a person with the
necessary training and experience Who is impartial ,and disinterested Stating an opinion as to the market
value ,as of a given date and Setting forth the facts and analysis
supporting the opinion
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urpose of Appraisal To determine aTo determine a purchase or sales pricepurchase or sales price ForFor tax purposestax purposes( ,charitable deduction( ,charitable deduction
)gift tax)gift tax
ForFor insurance purposesinsurance purposes(premiums are(premiums areusually set and claims paid based onusually set and claims paid based on
)replacement value)replacement value
To
To
obtain a loan
obtain a loan
secured by artwork
secured by artwork
To satisfy the curiosity of the ownerTo satisfy the curiosity of the owner
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ifficulties inifficulties inppraising Artworkppraising Artwork Original artwork is one of the mostOriginal artwork is one of the most
difficult things to valuedifficult things to value ValueValue depends on external factorsdepends on external factors
.that are difficult to quantify.that are difficult to quantify Appraisals are only asAppraisals are only as good as thegood as the
time periodtime period in which they arein which they arepresentedpresented
No cash flowsNo cash flows as in other assetas in other assetclassesclasses
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asic Appraisal Methods
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arket ComparisonApproach
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ost Approach Not applicable to all artworks like
.in painting
Applicable where say the
value of an
artwork made of precious metals orgems depends largely on the raw
materials or in the case of
decorative arts where the cost of
manufacturer is the main factor indetermining its value
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ncome Approachncome Approach Where the Where the ,artwork produces income,artwork produces income
such as artwork in the stock ofsuch as artwork in the stock ofsomeone in thesomeone in the business of rentingbusiness of renting
out artwork or a master image used toout artwork or a master image used toproduce signed and numbered prints orproduce signed and numbered prints or
commercial products such as posterscommercial products such as posters- .and t shirts- .and t shirts
Under this method theUnder this method the stream ofstream of
income is capitalizedincome is capitalizedand used as theand used as the
.basis for estimating value.basis for estimating value
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ntuitive Approachntuitive ApproachThis approach is not officiallyThis approach is not officially
recognized by any of the majorrecognized by any of the major,appraisal organizations or the IRS but,appraisal organizations or the IRS but
.it is commonly used in the art world.it is commonly used in the art world
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eplacement Valueeplacement ValueApproachpproach
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Art IndexArt Index
Equity: NIFTY/SENSEX/Others
Real Estate : RESSEX
Inflation: CPI
Commodity Price Indexes
Diamond : IDEX Diamond PriceIndex
Why is an Index reqd?
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ET Art IndexET Art Index
ET and Osians Connoisseurs of Art worlds premier Archive on the Indian
contemporary fine and popular arts
For the fund managers and insurancecompanies, but also for investors (HNIs)
Uses the transactions of artworksbelonging to Indias leading 51contemporary artists
M.F. Husain, F.N..Souza, Tyeb Mehta,Akbar Padamsee, Ganesh Pyne, J.Swaminathan, J. Sultan Ali, 3 Tagores
transaction value of these 51 artistscomprise 88% of the total organizedIndian art market
Calculated on the basis of the averageSquare Inch Rate (S.I.R) of works
The Liquidity and Historical Significanceweights have been considered so as to
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ET Art IndexET Art Index
ET Art Index gave a return of47.8%since its inception in January 1,1998. From a level of 100 onDecember 31, 1997 the index
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ET Art IndexET Art Index
ET Art Index gave a return of47.8% sinceits inception in
January 1, 1998. From a level of 100 on
M i M Fi A tM i M Fi A t
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Mei Moses Fine ArtMei Moses Fine ArtIndexIndex
Michael Moses and JiangpingMei (New York University'sStern School of Business,)
They take the original salesprice and then subtract itfrom the most recent sales
price at Christie's andSotheby's in New York
Most recent update shows,
over the last 50 years, the
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Mei Mosses Art IndexMei Mosses Art Index
A F d Al iA t F d Alt ti t
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Art Funds: Alternative toArt Funds: Alternative toArt InvestmentArt Investment
People who are keen oninvesting in art can make theirinvestments through ArtFunds.
These art funds in Indiabasically operate like mutualfunds, with people investing
money in them and the fundmanager purchasing art withthe collected money.
These art works are bought
through exhibitions or directly
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The following are some of the
major art funds currentlyoperating in India:
Osians Art Fund
Crayon Capital Art Fund Yatra Art Fund
Copal Art Fund
The latest entrant, the Indian
Fine Art Fund which is a $25million fund, has invitedinvestments starting from
W lth M tW lth M t
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Wealth ManagementWealth Management
ServicesServices** for Artfor Art
* SIAN s Wealth Management and eutsche Bank Private Wealth Managem
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TaxTax
At what stages Tax isattracted?
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Tax on PurchaseTax on Purchase
Art purchased in India
Sales Tax(VAT) 12.5%
Art purchased from outsideIndia
Import duty 14.712%
Sales Tax(VAT) 12.5%
Pay for being Rich:Pay for being Rich:
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Pay for being Rich:Pay for being Rich:Wealth TaxWealth Tax
At Present April 2012 onwards
Scope Paintings, drawings,sculptures not underwealth tax ambit
Paintings, drawings,sculptures underwealth tax ambit
Wealth Tax Limit Net wealth exceedingRs 30 lakhs
Net wealth exceedingRs 1 crore
Wealth Tax Rate 1% of taxable netwealth
1% of taxable netwealth
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Tax on Income from ArtTax on Income from Art
Any income earned fromwork of art such as
rent for allowing it to bedisplayed in anexhibition,
Fee for allowing it to be
reprinted in a book
Taxed as normal income
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Tax on Art as GiftTax on Art as Gift
Gift received during the year:paintings, sculptures orother 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
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Tax on SaleTax on Sale
Finance Bill 2007 amended scopeof capital assets
After 2007, capital assets also
include Archaeological collections,
Drawings,
Paintings,
Sculptures, Any work of art
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Tax on SaleTax 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 ofImprovement, Cost ofrestoration allowed asdeductions. But Cost of
storage is not allowed for
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Art vs. Capital MarketArt vs. Capital Market
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Art InsuranceArt Insurance
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What is insuredWhat is insured
Collection of:
drawings
paintings
Sculptures
any work of art
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InsuranceInsurance
Title Insurance Defective or lack of title
Property Insurance Loss
Fire damage
Water damage Restoration cost on damage
Theft
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Title InsuranceTitle Insurance
Need: lack of transparency
Confidentiality of buyers andsellers
No central registry for arttransactions
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Real Life CaseReal Life Case
Steven Spielberg, the movieproducer and art collector,
wanted a Norman Rockwell painting.He called the
gallery he usually purchased art fromand was told that aRockwell was available. He
purchased it for $700,000,
took it home. Sometime laterSpielberg was sued by theprevious owner who claimed that the
gallery was not atliberty to sell the work because it
lacked the proper
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,$700 000
Norman Rockwell painting
Court caseLegal
:charges,$50 000
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Cost vs. BenefitsCost vs. Benefits
Cost
Premium: 3%-7% of value ofwork
One time cost
Benefit
Insured for defending againstdefective title in courtroom
Insured the value of the work
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Cost Vs BenefitsCost Vs Benefits
Had Mr. Spielberg taken theinsurance
Cost: 7% of $700,000=$49,000
Benefit: Insured for $750,000
Value of the painting i.e.,$700,000
Defending charges i.e.,
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Property InsuranceProperty Insurance
Special attention to be paid on Risks to be covered: loss, theft,
damage or destruction(due tofire, 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 insurancecompany at a pre-negotiatedprice (i.e. the original value ofthe claim)
Arbitration clause to adjudicate
any disagreement on valuation
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Property InsuranceProperty Insurance
Premium depends upon Geography: For e.g. Mumbai is
more prone to floods than
Delhi is. So more premium inMumbai for insurance againstfloods
Neighbourhood where the
building is located The security and construction
of the building where theartwork is stored
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ExclusionExclusion
The following may or may not becovered under propertyinsurance
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 orsub let
Radioactive contamination
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Tips for Art InvestmentTips for Art Investment
Buy the Art which you like. Having emotional Connect
would mean less loss even incase if value falls
Buy Lower priced Art( moreroom for growth) instead ofMillion Dollar Masterpieces
Consider GrowthShares( Young Artists) alongwith Blue Chip ( FamousArtists)
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Tips for Art InvestmentTips for Art Investment
Know thy artist - Art buyersshould know the history of theartist's work apart from thequality. Also check the
provenance, condition andperiod in which it was paintedbefore investing.
Have a clear idea about the time
horizon and gestation periodfor a particular work toappreciate in value.
Last but not the least, buy artonly if you like the quality ofworkand not ust the artist.
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Thank You!Thank You!