Young Indians Buy Old Coins as Investment

At a time when investors are shying away from the highly volatile stock market, an unusual asset class is gaining traction among young investors in India. Old coins and bank notes some dating back to the early 1900s are commanding a premium among Indians looking for returns and memorabilia.

photosindia | Getty Images Close-up for an antique Indian one rupee coin

As trade is limited to small dealers and collectors, there is no organized data available on the size and value of the Indian market for old coins and evidence of growth is mostly anecdotal. But market watchers say the number of participants in coin auctions has doubled over the past five years.

For example, on eBay [EBAY 31.05 -0.78 (-2.45%) ] , Indian numismatics accounted for about 11 percent of all 2010 transactions, with a coin or note bought every four minutes, according to the website’s 2011 census.

There are also several coin shows held across the country every year. According to industry sources there are currently an estimated 10,000 coin collectors across India and they are on the rise.

"A few years ago coin collecting was just a hobby, but now it has become an investment. I have been dealing in coins since 1980 and things have been very good in recent years, and will be even better in years to come," says Rajneesh Jain, a Delhi-based dealer of coins and stamps, and the founding member of the Delhi Coin Society.

He adds that young collectors in the age group of 25-35 are driving growth. Anurag Varshney, 38, a software engineer has been collecting coins seriously for the past 10 years. "I started by picking up anything and everything, but now I focus on coins from one period. I'm trying to collect the whole set," says Varshney.

Coin dealers who spoke to CNBC say that new collectors keep entering the market pushing prices up. "Every time a new coin collector enters the market, prices immediately go up five to 10 percent, and then gradually even more, because of limited availability of the items they want," says Jain.

On average, he says, coin collectors can expect a ten fold return over three years, although in some rare cases, it can be far higher.

One of the most popular coins on the market today, says Jain, is a silver one-rupee coin from 1939, bearing the profile of King George VI. When Jain entered the business in 1980 the coin sold for just 750 rupees, now it can fetch 175,000 rupees ($3,500), if one comes up for sale as it is quite rare. "It's a supply and demand thing,” says Jain. According to him the silver coin issued in 1939 is rare to find today as most of the coins from that time were either melted, or withheld by the government.

There are other examples, says Jain, such as the 2001 limited edition commemorative 100 rupee coin that sold for 1,400 rupees at the time, and is now worth 20,000 rupees. Or the 1985 coin, also for 100 rupees, that is now worth 100,000 rupees. Or the coin collection consisting of 55 pieces dating from 1969 to 2005, that is now worth 500,000 rupees - five times the price at which it was last sold at an auction five years ago.

But before you start investing in coins, experts advise you do your homework. And the best place to start is the Internet. Learn how to recognize a counterfeit, investigate what ‘antique’ means, which can be difficult as there are no set regulations and interpretations differ. Also learn how coins are valued based on factors such as quality, age and demand. And importantly, know your market. In India, the demand is primarily for Indian coins, so experts advise against buying foreign coins.

While coin collecting can be a lucrative business, financial experts point out that it is an industry that is unregulated, lacks transparency and has poor liquidity. "I wouldn’t recommend an investor allocate more than 5 percent of their portfolio to old coins, it's just too risky," says Rohit Bhuta, Chief Executive Officer of Religare Macquarie Private Wealth. "The relative lack of transparency makes it hard to establish what and how much is out there. So I advise clients to treat them as a collector's item they get joy from, with the potential of a handsome return down the track."

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Source: http://www.cnbc.com/id/45099555