The Securities and Exchange Board of India (Sebi) may soon frame a stringent set of rules for funds investing in art works, antiques, coins and stamps, with an aim to check black money flow into these products and safeguard the interest of genuine investors.

Sebi considers investment funds focussed on art works, antiques, coins and stamps as “Collective Investment Schemes”, which come under the ambit of the capital market regulator.

Fearing flow of illicit wealth into these funds and also a high level of risk posed by them to the general investors, Sebi is now considering framing a specific set of regulations for these funds, a senior official said.

Globally, art funds are very famous as an alternative class of investments for rich investors and have started gaining some ground in India over the past few years.

However, there are no specific regulations in India for art and other such funds, which collect money from numerous investors, most of whom are high-net worth individuals to invest them into art works, antique pieces as also old and rare coins and stamps.

Sebi will soon begin a consultation process with various stakeholders, including the central government and RBI, with an aim to frame the specific regulations for these alternative investment vehicles this fiscal, the official added.

Earlier in 2008, a time when the art funds first became visible in India, the regulator had issued a public notice to warn the investors against putting their money into art funds or schemes of entities not registered with Sebi.

At that time, Sebi had said that its analysis of various art funds has found them to be ‘collective investment schemes’ and were being launched by various entities without registering with Sebi in accordance with the Sebi (Collective Investment Schemes) Regulations, 1999.

As per the existing regulations, only an entity registered with Sebi as a Collective Investment Management Company is allowed to offer any collective investment fund or scheme, including those focussed on art works.

However, there are no specific regulations for art funds and the need has been felt now to have a distinct set of rules for such investment vehicles, the official added.

Globally, alternative investment avenues are quite in vogue among rich investors, who are estimated to allocate 5-10 per cent of their investment portfolio into these products.

As per the annual World Wealth Report of Capgemini and Merrill Lynch Wealth Management, alternative investments are expected to account for nearly 9% of high-networth individuals’ financial assets in 2011.

These investments used to account for as much as 10% of HNIs’ financial assets in 2006, but had fallen to as low as 6% by 2009 due to the economic slowdown.

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February 2024