At a time when gold market is volatile, investing in precious stones will offer better yields in the long run. The players in the diamond sector have different schemes to offer in the form of jewellery. Different jewellers adopt different strategies to sell diamonds. Some offer huge discounts, while others even offer free making charges for a certain period of time. Sandhya Sutodia lays out the facts about diamonds as an investment option.

Investing in diamonds promises to be a great alternative at a time when the gold market is volatile and the yellow metal is seen losing its shine. Diamonds can be the investors’ best friend in the long run.

For times immemorial, diamonds have been a symbol of wealth coveted by brides-to-be and collectors, but could these precious stones also find a space in asset allocation for investment purpose?

According to experts, anyone looking at investing in diamonds can consider purchasing the precious stones from a reputed diamond trader, storing them and then selling it anytime in future. However, such a decision clearly can be intimidating for novice diamond purchasers.

One can also invest directly in diamond-mining companies’ shares. E-diamond on exchange platform and diamond stocks are good and effective options. It totally depends upon individual opinions; while some prefer to have physical delivery so that along with the investment, they can wear the diamond, others opt for e-Diamond, which is also playing a bigger role these days.

Companies promoting e-Diamonds back each e-Diamond certificate by physically storing the same. And Anglo American Plc and Rio Tinto Ltd are doing well in the diamond mining sector, industry sources said.

In the last five years, one to five-carat diamonds have provided an annual return of around 12 per cent and this year too global diamond prices are predicted to increase by around 10 per cent. The price of the best gems might even jump as much as by around 50 per cent, according to analysts.

“Factors such as increase in demand, decrease in supply, increase in the cost of mining and inflation (U.S. Dollar vs. Rupee) indicates that investment in diamond is surely going to give better returns than any of the other investments,” said Jignesh Mehta, Managing Director, Divine Solitaires.

“Yes, with the volatility in the gold prices, the falling rupee, more consumers are seen inclined towards investing in diamond jewellery. In the next few years, one can notice an increase in the demand for diamond-studded jewellery. There will be a handful of high net-worth individuals who buy rare stones or a small portfolio of stones as investments. Only higher value diamonds will fetch good returns on the investment,” said Colin Shah, Managing Director, Kama Schachter.

“With regards to investing, diamonds are a specialist area now,” says Namit Dave, an analyst adding that he recommends that an investor should devote a small amount of their portfolio to it – maximum five per cent – but smaller investors may find it unfeasible given the high costs.

“One should at least allocate 10 per cent of his investments for solitaires,” Mehta insists.

Demand for diamonds is increasing sharply as the fourth generation prefers diamonds over gold jewellery. The lifestyle of women, the primary users of diamonds, has changed drastically in India and China, right from housewives to business women and entrepreneurs. Many women have become career-oriented and prefer opting for light weight jewellery that makes a fashion statement.

The supply of rare diamonds is dropping gradually as many diamond mines have dried up in South Africa and new mines which are in Canada and Russia can be mined for only six months in a year due to the high costs of mining coupled with the extreme cold climate.

In investment arena, the players in the sector have different schemes to offer in the form of jewellery. Different jewellers adopt different strategies to sell diamonds. Some offer huge discounts, while others even offer free making charges for a certain period of time.

The diamond jewellery market in India is close to Rs 40,000 crore now and currently growing at almost 15 per cent year on year. It is recorded that diamond prices have increased eight to nine per cent almost every year and this is expected to be the trend in the future as well. An investment in diamonds does not give immediate results like gold does but definitely adds value to the original investment over a period of time, Shah added.

Under the ‘Plan Your Dream Solitaires and Save Scheme’, a customer can book a solitaire as per his preference and need. “All he needs to do is to pay 20 per cent booking amount and balance can be paid as per his preference (monthly or quarterly). Once the tenure is complete, the solitaire is delivered to the customer. Even if there is a rise in the price, than the customer just pays the booking price, and if there is a price drop, then the customer pays lower price,” says Mehta, adding, “The price of a divine solitaire diamond has appreciated by 96.33 per cent over the last five years. Diamond as an investment surpasses gold and Sensex.”

Talking about the fundamentals that one should look at while buying stones, Mehta said: “One should opt for the best stone in the aspect of cutting like hearts and arrows cut. One should also ensure that the diamond has high lustre and brilliance.”

It is always advisable to purchase stones from a reputed diamond trader. A retailer will add a retail mark-up that is very high when compared to the price that a diamond trader may offer. Purchasing diamonds from a reputed trader will also ensure that you are purchasing conflict free diamonds.

Customers can choose either of the two options. But a customer must ensure that the seller has complete knowledge and guides him properly in making the right purchase decision. “However, we always suggest that the customer should buy a branded diamond. The loyalty factor also plays an important role in the purchase decision,” he said.

It is difficult to get insurance for a generic diamond from an insurance company. At Divine Solitaires, every customer receives one year free insurance with the purchase of a solitaire.

Diamonds with greater caratage are the ones that fetch good returns over a period of time. Purchasing such large diamonds does require substantial up-front capital. So it advisable to obtain an insurance policy that covers diamonds for theft or damage. For greater and substantial returns, one should be prepared for a long term investment when investing in diamonds (unlike gold), said Shah.

Before buying the stone, one should gain intensive knowledge on diamond, including the 4 c’s – cut, clarity, colour, carat. “Approach a reputed trader or a reliable source to help you make the investment. Unlike gold, the price of diamonds cannot be determined immediately,” said a diamond merchant.

However Kaushlendra Singh Sengar, a diamond analyst feels it is not advisable to invest in a variable return products that too when the average return is of just 12 per cent, which is not even sure. “Therefore it is better to invest in fixed deposit schemes which give an assured return between 9 per cent and 10 per cent,” Sengar said.

“Both the options are useless as average inflation of commodities is around 15 per cent. So any security whichever is providing return less than 15 per cent is not productive,” Sengar added.

Do not invest in diamonds if you need quick liquidity, a portfolio manager said.