Though it promises high returns, this elite asset class is only for the ultra rich
Need a ticket to the high life? Invest in the best wines the world has to offer.
For a new class of investors willing to combine passion with investment acumen, wine is more than just an indulgence for the taste buds.
Wine advisory companies assess the global market for fine wine to grow at $3 billion annually. For investors looking to diversify from conventional investment classes, this can be agood alternative, say investment advisors.
Last financial year, London based Liv-ex Fine Wine 100 Index, the only benchmark index for the wine investment industry, rose by over 26 per cent. The year before, it rose by 31 per cent. In comparison, Nifty, the Indian equity benchmark index, rose by just over eight per cent last financial year.
INVESTMENTS
As of now, there are no Indian wines, wineries or wine funds one can invest in. Investors have to look to international wine funds. One could even invest directly in wineries or bottles of classic fine wine and wait for its price to turn lucrative before putting it up for sale.
For instance, the price of Château Lafite Rothschild, 2000 vintage, has risen more than five times over the last five years. Château Mouton Rothschild, 1982 vintage, has shot up 173 per cent in the same period.
Indian wine advisory firms, such as Antique Wine Company and Drayton Capital, offer services to hold and preserve the wine on behalf of their clients.
You can also invest in wine futures or "en primeur", that is, wine which has not been bottled and is still in barrels. Given the high demand for fine wine, your chances of getting wine are higher with wine futures, at the least possible price. And, the prices only get better with age.
Cellar and storage companies and wine merchants help you with preserving the wine and shipping it wherever you want to sell it.
You can sell through auctions and wine merchants have buyback policies. Governed by the Liv-ex exchange, market prices are very transparent.
EXCLUSIVITY
International wine investment portfolios invest 80-90 per cent of their value in just eight brands or vineyards. Five of the best fine wines in the world are from the Bordeaux in France. The restricted supply from these wineries makes them rare and expensive.
This is one of the reasons why investing in a bottle of fine wine is a good idea, wine advisories say. Also, prices are not volatile, making this somewhat insulated from the financial markets. During the market crash of 2008, while the Sensex lost more than half its value, wine prices corrected by about 10-20 per cent.
However, investing in the highly-priced, exotic drink belongs to an elite group of investors. According to Sonal Holland, country representative at the Antique Wine Company, "Orders of less than `5 lakh are not considered." Clearly, investing in wine is suitable for the ultra high networth individuals only.
RISKS
However, such exclusivity makes it a high risk asset class. A lot will depend on the fund manager's ability to source good wines and the kind of wine dealers available. Clearly, as an asset class, it is strictly for people who know and understand wine. Also, the valuations are not clear and it is not well regulated like traditional asset classes. It may not be as liquid compared to other asset classes. Wine advisors say investors need to consider their budget, investment time frame and the reason for investment —pure passion or speculation.
The profits made on investments in fine wines overseas will attract capital gains tax, says Holland. Tax experts say that profits made on investing in wine can be considered as income from other sources.