There’s more to wine than bouquet, tears and finish. The real taste of wine, for the adventurous investor, is in the profit it can earn. Though wine funds have been around since the early part of the decade, they are now becoming the flavour of the season for the Indian high net worth investor.
Premier Cru Fine Wine Investments, a UK-based wine fund, is entering India soon. “We had some discussions with them about a year ago. They are keen on selling the fund to Indian investors. At that time, the markets were not doing well and wealth managers were reluctant to suggest this as an alternate asset class. But things are beginning to change now,” says Vikram Achanta, founder, Tulleeho.
“Awareness about wine is growing tremendously. This is why corporate heads and businessmen who have made their money in other businesses are investing in wine now. And since the value of wines appreciates, wine funds become an area of diversification for your personal portfolio,” says Kapil Grover, director, Grover Vineyards.
Gautam Shah, a Mumbai-based private equity investor, first started investing in wines when he was working as an investment banker in London in 2002. “Those were the heady days of investment banking and dinners with clients and colleagues meant drinking good wines. I developed an interest in wine and started buying wine as an investor. But it was difficult to sustain as there were a lot of concerns about storage, etc. That’s when I started investing in wine funds,” he says.
The growth of Indian investments in wine and the investment potential of these funds are symbiotic. Wine funds work on the simple theory of demand and supply economics. As Indians (and Chinese) become richer, the demand for fine wine increases. The limited supply of vintage and fine wines ensures that this new demand drives up prices. So investing in a good wine fund today could yield you the money to drink a better wine tomorrow.
Good wine: Investment-grade wine must have an instantly recognizable label or a brand with a long track record of quality.
A wine fund works a lot like mutual funds. The fund collects money from investors and uses it to buy wines. The portfolio is constructed based on the investment tenet of the fund, so some funds have more vintage wines while others may have more wines from certain regions—such as Bordeaux, Australia or California. To be regarded as a good investment, a wine must have an instantly recognizable label or a brand with a long track record of quality, and high to very high prices. It should be stored in a bonded warehouse to maintain its quality.
The funds have various base-level criteria for the wine they buy. Investors use the Parker score on a fine wine before buying, a classification scale of up to 100 that was devised by US journalist Robert Parker Jr, an influential wine connoisseur. Most funds invest only in wines that score 90 or above on the Parker scores.
UK funds are usually indexed against the London International Vintners Exchange (Liv-ex). The Liv-ex 100 represents the price movement of 100 of the most sought-after fine wines for which there is a strong secondary market. The value of the index is calculated monthly. The majority of the index consists of Bordeaux wines—a reflection of the overall market—although wines from Burgundy, the Rhone, Champagne and Italy are also included.
The year 2008 was a black hole for most investments and wine funds were no different. “I earned really good returns in my first two years (2006 and 2007) as a wine investor,” Shah says. “But 2008 was a test of faith. One fund lost over 30%. Luckily for me (in retrospect), it had a lock-in period and I could not sell. The fund is back comfortably in the green in 2009.” Liv-ex 100 is up 14% from the start of this year and it has clocked yearly gains of 9.5%.
All wine funds are based abroad. But you can invest using the Reserve Bank of India’s liberalized overseas norms, now capped at $200,000 (around Rs94 lakh) a year. The profits you earn from this investment, when you redeem these funds, can also be brought back to India. Watch out for tax implications though. If your fund is not based in a country with which India has a double taxation treaty, you would be liable to pay taxes in both places.
Before you invest, do remember that wine funds are largely unregulated and the risks of unscrupulous fund houses disappearing with your money is high. Do your research carefully and pick a fund with a long track record. Your knowledge of wines is not a criterion. “Investors’ knowledge and passion for the product has in the past proved to be unhelpful as they tend to take too much of a personal interest in the choice. The reason our structure works is because we are dispassionate about the wine itself and choose wines which have the financial potential and the risk element (low, medium or high) that suits the investors’ needs,” says Stacey Golding, investments director, Premier Cru Fine Wine Investments. “Don’t get me wrong, we are passionate about wine, but we are careful not to become personally influenced by our tastes.”
Wine investment is only for those who already have a reasonably large portfolio invested in traditional avenues such as equity, debt, real estate and gold. Wine funds are a satellite investment and should not exceed 2-5% of your portfolio, says Gaurav Mashruwala, a certified financial planner.
Go ahead, swill your glass of fine wine; you’ll probably be able to smell your profits too.