If you are looking for an unorthodox investment of a few thousand pounds, investing in wine could be one idea worth exploring. Over the past few years, returns on fine wine investments have done better than many equities and commodities.

The primary drivers for growth appear to be the rich having more money to spend and the marked move towards greater transparency in the wine investment market.

Still, wine investment is an unregulated area and although the Financial Services Authority has approved a few funds organised for this purpose there is still a large element of risk associated with investing in Wine. Some of the things you need to know about investing in wine are outlined below.

Investment Wines

Although there are wines produced from all over the world, from an investment perspective you should invest only in "blue chip" wines. Investment wines refer primarily to the best wines from Bordeaux, the best burgundy, and some of the best wines from Italy.

Because of its long history and quasi-regulated structure, Bordeaux occupies the pre-eminent place among the world's wine regions. It produces fine wine in more quantity and with greater regularity than any other area in the world. The high demand for Bordeaux wine combined with its relative scarcity makes it ideal for investment purposes.

What to Look For

If you are seriously contemplating investment in wines, you will need guidance from experts. Some people look at the opinions of American journalist Robert Parker, whose rating of 90-plus on a scale of 100 indicates a probable investment. Others take the simple approach of Hugh Johnson's Pocket Wine Book for authoritative assessments on individual chateaux and observations on vintage quality.

The best way to generate good returns may be by buying 'en primeur'. This means you buy after the wine has been produced and tasted, but before it is bottled for the mass market. You can also buy wine in bottled form, though it will be more expensive and you will need proof of provenance and storage conditions.

Wine production roughly follows a set timescale: grapes are harvested between end-August and early October; the wine is made and stored in barrels, and the following April/May it is tasted and rated by wine experts in this 'en primeur' form.

The wine goes into storage, and is available in bottled form roughly two years later. So the 'en primeur' 2007 vintage becomes available for tasting (and sale) in April 2008, but is not available in bottle until early 2010.

Buying at 'en primeur' stage is a kind of futures market for bottled wine, and it allows you to buy in at the earliest possible point in the wine's life cycle. But there are risks, and there have been many scams. If you're investing in wine you must always insist on authentic documentation.

In addition, there is also the chance that what the experts think is an outstanding vintage at 'en primeur' stage will turn out to be very ordinary two years later when bottled.

Other Considerations

If you are considering investing in fine wine there are other considerations to think about beyond the price of the wine itself. For example, wine storage is crucially important and it is probably best left to the experts. Specialist wine storage companies have the space and equipment to ensure ideal storage conditions for your investment. So expect a storage fee of perhaps £6 a case annually.

Aside from the quality advantage, there is also a tax advantage when you store your wine under bond through a storage facility. Being in a customs-controlled warehouse, the wine is treated as not having entered the UK market, and you won't have to pay duty (£13 a case) or VAT (17.5%).

You will have to factor in these costs, and the savings, into your investment calculations. Another tax advantage is that wine is treated as a 'wasting asset' and profits derived from it are not subject to capital gains tax under current regulations, if you do buy and sell often enough to be considered a dealer.

Before you make a final plunge, remember investment grade wine is something of an affluent person's hobby and wine in general is subject to fashion fluctuations. Wine investment is not necessarily an ultra long-term business, but investment wines do take several years to reach full potential.

As long as you don't put too much money into it, get expert opinion, and transact through reputable merchants, investment in wine may pay off. If you end up with negative equity, you can always drink your investment with your friends.

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