Though not a new concept, investing in wine is just catching on in India, especially among high net worth individuals. Here's how you too can benefit from this asset.
It is not merely a prandial drink for them. Wines are serious business for high net worth individuals. One of the most exotic alternative investments, its returns are equally alluring: 10-50% a bottle. Perhaps that is why millionaires have cellars stuffed with wines of different vintages.
Ayesha Chenoy of Drayton Capital, a wine advisory and investment company, offers more reasons: "Wine is not very volatile and has a low correlation to traditional asset classes such as equities and bonds. So it provides diversification and gives exceptional returns.
Owning a cellar, and a mansion to build it in, may be a dream for you. But investing in wines is closer to reality. If you have met your targeted investments in debt, equity, and property, consider buying a couple of bottles or investing in a wine fund. The minimum investment should be 2 lakh. But before that, brush up your wine knowledge. As with all other investments, you must do rigorous research about terroir, storage conditions and the pedigree of wine producers to make an informed choice. Here are three popular ways to invest in wine:
Buy bottles:
It is the most traditional and seemingly simple way to invest in wine. But buying bottles is not easy as wine trading is still a new concept in India. For one, how do you decide which wine to buy? "A thorough examination of the brand, vintage, longevity, history of the producer, consistency, score and storage conditions are essential to determine the quality of the wine," says Chenoy. Online ratings by reputed societies and wine tasters are a reliable source for such information. To buy the wine, you have to rely on brokers in other countries who export it to India. This increases the cost of investment as you have to pay import duty. Then comes the headache of finding a suitable warehouse to store the bottles for several years.
The solution is to keep them in bonded warehouses in the countries you buy them. You will have to pay storage charges but these are lower than the import duty. The brokers will monitor the investments and also help you to sell them. Taxes will kick in where applicable.
Wine funds:
As with gold and art, you can invest in wine through speciality funds that buy wine. The funds send a share certificate with details of your investment, including a net asset value of the share. They also give regular updates on the value of your wine. The minimum lock-in period varies across funds. At the time of exit, you receive the net profit depending on the growth in the value of the wine.
The advantage of wine funds is that you don't have to worry about storage or broker commissions. However, a high entry fee could be a barrier for most investors. Meenu Kohli, director of Winteage Investments, says for investing through her fund house, you will have to cough up at least £5,100 (about 4 lakh). The minimum amount for investing through funds or advisory companies is more than 1 lakh.
Wine futures:
If you want to invest in wine even before it is bottled, opt for wine futures, also called wine primeurs. Investing in wine that has not been tasted is considered riskier than buying bottles or buying wine funds. However, investors like Rajen Mariwala, a Mumbai-based industrialist who has just bought 2009 Bourdeaux options, are confident that the returns from wine futures will be high.
Keep in mind:
Only 1% of the world's wines (268.7 million hectolitres) are investible. These wines can last between 50 and 100 years. The value of all wines does not appreciate with maturity, so wines with a shorter lifespan may not make for good investments.
Remember, wine is a long-term investment. Says Myles Mayall from The Wine Society of India:"Profits can range from 10-50% on every bottle, but the key is to remain invested for long. The investment horizon for wines to mature is 5-15 years."
Fluctuating currency markets can play havoc with your investments. Say, you buy Californian wine worth $100 at the rate of 45 a dollar. After five years, its price rises to $140 and the rupee appreciates to 40 a dollar. This will reduce your profit to 1,600 from 1,800. You must keep an eye on brokerage and storage charges too, so don't invest after you down a couple of bottles.
