Mumbai, Feb. 13: The Securities and Exchange Board of India (Sebi) today said it would crack down on art funds that looked to raise money from investors without first registering with the regulator.

Art funds have started mushrooming in recent years as people have woken up to the blow-out returns they can realise from investments in works of art.

Many investors do not have the money to buy a painting or a piece of sculpture from a top artist. The art funds raise money from people and create a small collection. The returns are paid out when they sell the collection — and they are usually handsome. Sebi said art funds that do not register with it faced the prospect of civil or criminal proceedings for violating the Sebi act.

The market cop wants to regulate these art funds under the norms that govern collective investment schemes.

Sebi’s notice has come at a time when investors in stock markets have started scouting for other investment avenues after the recent slump.

At present, no entity has registered with Sebi under the collective investment scheme (CIS) regulations.

The regulator said art funds “are collective investment schemes as defined under Section 11AA (2) of the Sebi Act, 1992. The funds have been launched or floated by these entities without obtaining a certificate of registration in accordance with the CIS.”

“Only a company which has been granted certificate of registration by the board in accordance with the regulations can launch or sponsor a CIS,” the notice said.

Over the past two to three years, a number of art funds have been set up in India. Most of these funds have been floated by people who manage art galleries. Some have also been floated by art collectors.

Osian, Saffron Art and Sakshi Art are some of the prominent art fund managers. Other art funds in India include the India Art Fund, which has been launched by the wealth management division of Kotak Mahindra Bank, Yatra Fund and Crayon Capital Fund. ICICI Bank is creating a $25-million art fund primarily targeting Gulf-based NRIs.

“We run two art funds at present – Yatra Art Fund I and Yatra Art Fund II with sizes of $2.5 million and $5.5 million, respectively,” said an official managing the art funds for Sakshi Art Gallery.

“There are about 60 members in the first fund, and 150 members in the second. When we launched our first fund two years ago, there was no such regulatory norm and we have not received any official notice from Sebi yet. However, once the regulator provides us a feasible window for compliance, we will do so,” the official added.

The Indian art market is still in its nascent stage, when compared to countries such as China. According to industry estimates, the Indian art market has grown from $2 million to $400 million over the past seven years.