top of page

Art Funds Regulation in India

Updated: Jul 18, 2023

What is an art fund?

An art fund is when a handful of investors come together under a trust arrangement for creating a pool of investments in art. It is intended to be a pool of art works, into which high net worth individuals can invest.

Art is an illiquid market, Investing in art is uncorrelated to equity returns. Art funds are risky as there is no price discovery mechanism and valuations are subjective. Art has all the makings of a great investment , its glamorous with long term appreciation even though, there is no art financing in India, most HNIs( High net worth individuals) and private collectors buy art for the love of art and use private wealth.

Art Funds in India

The Indian art market saw renaissance from 2000 to 2005, this prompted many sponsors to launch their own art funds. These art funds aimed to help the wealthy who had little knowledge of art, to invest in art, which would appreciate over time.

YatraFund , was launched in 2005, followed by Osian in 2006. Both funds were close ended and required investors to lock in the sums for four to five years. The best known names in the Indian art world advised novice investors on buying art. Religare, Edelweiss and other art funds soon followed their footsteps. Pre 2013, SEBI had created no legal structure for art funds, as a result investors were putting money into the market without the regulators protection. The 2008 crisis brought most issues dealing with art funds in India to the limelight, as in theory they were like equity mutual funds but could not be encashed as easily due to no fixed method of valuation either. Most of these funds ran into legal trouble as they could not pay back investors their initial investments, forget profits on sales.

Indian law on art funds

Art funds are under the ambit of Collective Investment Scheme (CIS) , as established by SEBIs order in the Osians matter. The Securities and Exchange Board of India ( SEBI) in April 2013, ordered Osian-Connoisseurs of Art Private Ltd, to set aside its CIS and refund the investors money with 10% interest within three months.This was the first order issued against any art fund.

SEBI also relied upon the Supreme court’s order on the Sahara optionally convertible debentures case, SEBI said, it was not a private placement as an offer to 50 or more persons makes it a public issue, also stating that Osian art fund satisfied all conditions of a CIS. Osian had contended that the units offered by it are not “securities” and that CIS regulations only apply to schemes launched or sponsored by companies, and in addition applied only to plantation/agro companies.

The procedure as it stands today:

Registration of art funds/ fund trusts with SEBI in the prescribed corporate form is mandatory as they come under the scope of CIS. Section 12 (1B) of the Securities and Exchange board of India Act , 1992 read with regulation 3 of SEBI (Collective investment Scheme) Regulations, 1999.

Before the matter was clarified, SEBI relied on Section 11 2(C) of the SEBI Act,1992 which states the following:-

"11(2) Without prejudice to the generality of the foregoing provisions, the measures refereed to therein may provide for-

(C) Registering and regulation the working of venture capital funds and collective investment schemes , including mutual funds."

In 1995 , Section 12 (1B) was introduced , by which it became clear that no person can sponsor or cause to be sponsored or carry on or cause to be carried on any collective investment scheme unless he obtains a certificate of registration from the Board in accordance with the regulations 12(1B), and the CIS Regulations, in particular, regulation 2(h), which defined a “Collective Investment Management Company” as follows:

“(h) “Collective Investment Management Company” means a company incorporated under the Companies Act, 1956 and registered with the Board under these regulations, whose object is to organise, operate and manage a collective investment scheme”

Regulation 3 of the CIS Regulations states:

“3. No person other than a Collective Investment Management Company which has obtained a certificate under these regulations shall carry on or sponsor or launch a collective investment scheme.”

In 1999 by amendment , section 11AA was introduced in which it was stated:-

"11AA. Collective investment scheme.-

(1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) Or sub-section (2A) shall be a collective investment scheme: Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme.

(2) Any scheme or arrangement made or offered by any company under which,-

(i) The contributions, or payment made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement;

(ii) The contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement;

(iii) The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;

(iv) The investors do not have day-to-day control over the management and operation of the scheme or arrangement.

(2A) Any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act.

(3)Notwithstanding anything contained in sub-section (2) or sub-section (2A), any scheme or arrangement—

(i) Made or offered by a co-operative society registered under the Co-operative Societies Act,1912 (2 of 1912) or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State;

(ii) Under which deposits are accepted by non-banking financial companies as defined in clause(f) of section 45-I of the Reserve Bank of IndiaAct, 1934;

(iii) Being a contract of insurance to which the Insurance Act, 1938, applies;

(iv) Providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act,1952;

(v) Under which deposits are accepted under section 58A of the Companies Act, 1956;

(vi) Under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act,1956;

(vii) Falling within the meaning of Chit business as defined in clause (e) of section 2 of the Chit Fund Act, 1982;

(viii) Under which contributions made are in the nature of subscription to a mutual fund;

(ix) Such other scheme or arrangement which the Central Government may, in consultation with the Board, notify, shall not be a collective investment scheme.”

To make matters clear the Supreme Court held in Osian Connoisseurs of Art Pvt. Ltd. vs. SEBI and other connected matters (Civil Appeal No. 54 of 2016), that the statutory scheme, therefore, is that, if a collective investment scheme, as defined, is to be floated by a person, it could only be done in the form of a collective investment management company and in no other form. This is the reason why Section 11AA uses the expression “company” in sub-Section (2) and not the word “person” (as the CIS Regulations of 1999 had come into force on 15.10.1999; Section 11AA being enacted and coming into force on 22.02.2000).

Written by Hemika Gill.

Disclaimer: The information contained in this site is provided for informational purposes only and should not be construed as legal advice on any subject matter. Further, the information produced in this article is published by and reflects the author’s personal views, in their individual capacity. For any related query or assistance, reach out to us at

bottom of page