A Sparkling Investment: Diamond Buying Guide For Indians

Investing in diamonds in India has become an attractive option for those looking to diversify their portfolios. Diamonds are a physical commodity that can be easily purchased from jewellery retailers, both offline and online. The Indian Commodity Exchange (ICEX) has also made it possible to invest in diamonds through derivative contracts, providing a transparent price discovery process.

However, there are pros and cons to investing in diamonds. On the one hand, diamonds are highly durable, inflation-proof, and easy to store due to their small size. On the other hand, there is a lack of price transparency and tradability, making it challenging to resell diamond jewellery.

Before investing in diamonds, it is essential to learn the basics, set a budget, and understand the risks involved.

Learn the basics of diamonds

Diamonds are a great investment option, but like any other investment, they come with their own set of pros and cons. Here are some basic guidelines to help you understand the world of diamonds better:

The Four Cs:

The four Cs of diamonds are clarity, cut, carat, and colour. These are the fundamental characteristics that determine a diamond's value and quality.

• Clarity: Refers to the imperfections in a diamond. The fewer imperfections, the higher the clarity grade.
• Cut: The cut of a diamond controls its brilliance. A well-cut diamond will reflect light better, resulting in more sparkle.
• Carat: This is the standard unit of weight for diamonds. One carat is equal to 200 milligrams.
• Colour: The colour of a diamond, or rather the lack of it, is another important factor. White or colourless diamonds are considered the most valuable.

Anatomy of a Diamond:

Understanding the anatomy of a diamond will help you appreciate its beauty and value. A diamond's anatomy includes its table (the large, flat facet on top), crown (the upper part of the diamond), girdle (the thin edge of the diamond), and pavilion (the lower part of the diamond).

Choosing Diamond Jewellery:

When investing in diamond jewellery, it's important to consider the setting, which is usually made of gold, platinum, or silver. The choice of setting will depend on the cut and clarity of the diamond. Additionally, the resell value of diamond jewellery includes the value of the setting, so it's crucial to consider the mountings as well as the diamond itself.

Certification:

Always ask for a diamond certificate issued by a reputable laboratory, such as the Gemological Institute of America (GIA). The certificate includes important details about the diamond, such as its colour, clarity, cut, and carat weight. Any changes in these characteristics can significantly impact the diamond's price.

Where to Buy:

Diamonds are available at any jewellery retailer, offline or online. However, it's important to buy from trusted retailers and compare prices and customer policies. Consider buying directly from manufacturers to cut out middlemen and potentially get a better deal.

Questions to Ask:

Don't be afraid to ask questions. Reach out to diamond experts and consultants, and use online forums and social media to get your queries answered. Ask about the diamond's characteristics, certification, and the retailer's policies. The more informed you are, the better decisions you'll make.

Set a budget

Setting a budget is an important step when investing in diamonds. While diamonds can be a good investment opportunity, it is important to remember that they should only make up a small portion of your portfolio.

When setting a budget for diamond investment, it is crucial to consider the basics of diamonds, such as the 4Cs (clarity, cut, carat, and colour). Understanding these factors will help you make an informed decision about which diamonds to invest in and ensure you are getting good value for your money.

The budget you set should be based on your overall investment portfolio and financial goals. It is important to remember that diamond investment typically requires a higher initial amount than other investments. However, it is crucial not to go over your budget when investing in diamond jewellery. Compare prices with different retailers, both offline and online, to find the best value within your budget.

Additionally, consider diversifying your diamond investments by splitting your budget across multiple purchases. This can help reduce risk and provide more flexibility in your investment strategy.

It is also important to note that the diamond market in India lacks price transparency, and the resale value of diamonds can be unpredictable. Therefore, when setting a budget for diamond investment, it is advisable to consider it as a long-term investment and be prepared to hold onto your diamonds for several years to see potential gains.

Research and compare

When it comes to investing in diamonds, it is important to do your research and compare different options. Here are some key considerations:

• Trusted Jewellery Retailers: Research and compare trusted jewellery retailers in India. Look for established brands with a good reputation and a track record of fair pricing and customer satisfaction. Compare their prices, customer policies, and the types of diamonds they offer.
• Diamond Pricing: Understand that diamond pricing is not standardised in India. The price of diamonds depends on the market, based on demand and supply. Research the current market value of diamonds and keep an eye on price trends.
• Diamond Specifications: Familiarise yourself with diamond specifications such as the 4Cs (clarity, cut, carat, and colour). The rarer the combination of these factors, the more valuable the diamond. Compare diamonds based on these specifications to make informed choices.
• Certification: Always insist on certified diamonds. Reputable gemmological laboratories like the Gemological Institute of America (GIA) and the International Gemological Institute (IGI) provide strict certification. GIA-certified diamonds are widely preferred. Certification ensures the authenticity and quality of the diamond and is crucial for both buying and selling.
• Rare and Desired Diamonds: Consider investing in rare and desired diamond cuts with high clarity. These are likely to have a higher resale value. Natural coloured diamonds, such as pink, blue, or yellow, are considered more valuable and make a good investment.
• Diamond Settings: If you're buying diamond jewellery, the setting can affect the overall value. Common settings include gold, platinum, or silver. Carefully consider which setting complements the cut and clarity of the diamond. The resale value of diamond jewellery includes the value of the setting, so research and compare different options.
• Online Retailers: Compare prices and offerings from online retailers, as they can be a convenient and accessible way to purchase diamonds. However, be cautious and only buy from reputable sources.

Go for rare and desired diamond stones

When investing in diamonds, it is important to consider the rarity and desirability of the stone. While diamonds are abundant compared to other gemstones, gem-quality diamonds are rarer. The bigger, clearer, and least colourful the diamond, the rarer it is. These factors contribute to a higher price tag.

When purchasing a diamond ring, for example, consider investing in a rare diamond cut with high clarity that fits within your budget. This will help you reap a good return on your investment.

Additionally, it is important to be aware of the diamond's setting, such as gold, platinum, or silver, and carefully consider which setting goes with the cut and clarity of the diamond. The resell value of diamond jewellery includes the value of the setting, so it is essential to research the mountings as much as the diamond stones.

When investing in diamonds, it is crucial to remember that not all diamonds are created equal. By choosing rare and desired diamond stones, you increase the likelihood of a higher return on your investment.

Understand the risks and cons

Diamonds are a tricky business when it comes to investing. While they have high intrinsic value, are always in demand, and last forever, there are some potential pitfalls to be aware of. Here are some of the risks and cons of investing in diamonds in India:

Lack of Price Transparency

Diamonds, unlike gold, do not have a universal price per gram. Each diamond is valued individually based on its unique characteristics, and these valuations can be somewhat subjective. This makes it challenging to determine the true value of a diamond and can lead to potential overvaluation or undervaluation. While there is the Rapaport price list, it only considers basic factors like carat weight, clarity, and color, and does not account for the dynamic nature of the diamond market, where prices are determined by supply and demand.

Lack of Tradability

Buying diamonds is relatively easy, but selling them can be challenging. There are companies that buy diamonds, but they may offer lower prices than what you originally paid. Additionally, the resale value of diamonds can be uncertain, and it may be difficult to find buyers willing to pay a premium. This lack of tradability makes diamonds less liquid assets compared to other investment options.

Long-Term Investment

Diamonds are not a short-term investment strategy. Their value increases slowly over time, and it may take years to see significant returns. If you need to sell early, you may end up getting a lower price than what you paid. Therefore, diamonds are better suited for long-term investment horizons, where you are willing to hold them for an extended period.

Tax and Hidden Costs

When investing in diamonds, you need to consider the tax implications. In some cases, you may incur VAT or other taxes, which can eat into your profits. Additionally, there may be retailer markups, the cost of settings, and insurance expenses. These hidden costs can add up and reduce the overall return on your investment.

Subjectivity in Valuation

The valuation of diamonds can be subjective and depend on the individual appraiser's judgment. This subjectivity can lead to inconsistencies in pricing and make it challenging to determine a fair market value. It also highlights the importance of buying certified diamonds from reputable laboratories like GIA to ensure accurate grading and minimize the risk of overvaluation or undervaluation.

Limited Historical Data

Compared to other investment options like stocks or bonds, diamonds have a shorter track record of performance. This limited historical data makes it challenging to predict future price movements and potential returns accurately. While diamonds have generally appreciated in value over time, there is no guarantee that this trend will continue indefinitely.

Frequently asked questions