The Reel Returns - film funds

Exploring one of india's most glamourous investment alternatives: film funds

What to bear in mind while investing in celluloid

1. Check if the film fund is registered
2. The fund's offer document should be specific about its investments
3. Check how the fund is being managed
4. Understand how the team selects films

The blockbuster 3 Idiots apparently made Rs 300 crore in less than three months. Regardless of what you thought of the movie, it sounds like a great investment. But can you benefit from it? For years, our benefit from films was limited to our experience as viewers. With the launch of film funds, however, films are now a real option for the Indian investor. Like mutual funds which invest in publicly listed stocks and private equity funds which fund privately listed firms, film funds provide growth capital to various kinds of films. Investors earn the return on film projects from ticket sales, merchandise, or satellite rights. Religare Vistaar and Cinema Venture Fund already have funds available and a number of others, including Nomad Film Fund and Midaas Film Fund are in the pipeline. What should you know about backing the next big blockbuster?

Do a basic hygiene check. First, check whether the film fund is registered with Sebi (typically as a venture capital fund). Next, check fund size. A fund that is too large will struggle to find attractive projects to invest in and be forced to make inferior investments. Film costs range from under Rs 1 crore to over Rs 50 crore for some of the largest films. Funds should typically have a size of Rs 100 crore-300 crore invested over 3-5 years. Note the fees of the fund. They should be in line with a portfolio management service (PMS) or private equity fund—management fee with profit sharing, where the profit-sharing component dominates.

Understand the mandate. Learning about what the film fund invests in is critical and, ideally, the fund’s offer document should be very specific about this. The fund should indicate the number of films it is planning to invest in to ensure that its bets are diversified across a number of films. Filmmaking has about 42 different revenue sources, from ticket sales to merchandise, and the fund’s investors should be able to benefit from all varieties of revenue. Finally, the film industry has always been considered a “murky” business. Understand what exactly your money is going to be financing, and how much of a film’s revenue will actually return to you.

Team and track record. Check how the fund is being managed. Funds will have a board of directors as well as an investment committee to select projects. These should comprise people with film production and financing experience. Be wary of a board filled with glamorous superstar names—skills in front of the camera don’t necessarily translate to expertise behind it. Understand the execution track record of the producers and financiers on the board—what films did they finance in the past, what was the budget, and what were the collections? If the fund is open ended, you can look at past investments.

Investment process. Understand how the team selects films. What is the screening process to approve funding for a film, and what are the criteria for providing funds? Films are notorious for delays, which can be costly to investors. What are the checks in place to ensure that films are made on time? Marketing and release are as important as making the film, and how involved the team get in this piece. Most importantly, many films fail because their budgets fail—how does the team ensure the budget stays in place?

If you portfolio is diversified beyond traditional asset classes—equities, debt, commodities, F&O, films and film funds may be a place to make a small bet. That said, you may want to get your feet wet by trying film production stocks first—UTV, Mukta Arts and Shree Ashtavinayak are some of the listed securities that will provide exposure to film and television. Once you have a little bit of comfort, hit the riskier waters of the silver screen.