Is Diamond The Best Investment?

Is Diamond The Best Investment?

Diamonds are a scarce commodity. They exude luxury, beauty and wealth. Diamonds as an investment are on the rise. However, the diamond market today remains opaque and the investments are best left to experts and seasoned professionals. It is not for novice investors or for those with limited funds.

Diamonds As Investments

In India, diamonds are mostly bought as jewellery for aesthetics. However, certifications have persuaded investors to have their very own diamond portfolio.

Diamonds are broadly divided into two types – consumer goods and investment grade diamonds. Investment grade diamonds are the ones that have some unique characteristics that can overcome or at least minimize the risks involved in the investment. Its value has better chances of appreciation.

What Makes Diamonds Investible?

Colour

Coloured diamonds are a good choice for investment. Only 0.01% of 10000 diamonds are naturally coloured. From an investment standpoint, coloured diamonds are superior to colourless diamonds. Coloured diamonds come in every shape and size and every diamond is unique.

Clarity

Clarity largely affects the value of white diamonds. Investment-grade diamonds with clarity assessment of Flawless (F), Internally Flawless (IF), Very Very Slightly Included (VVSI), or Very Slightly Included (VSI) have the maximum appreciation potential. Diamonds with Slightly Included (SI) or Included (I) are best to be avoided for investment as they rarely increase in value.

Quality Certification

Quality certification definitely tips the value of a diamond. They are to be graded by an international or national certification body and to be confirmed by an expert. Having a certificate greatly increases its potential for good value. However, it needs to be appraised by a reputable, unbiased entity such as the Gemmological Institute of India or a similar international entity.

Diamond Shape

Round brilliant cuts are the most valued investment-grade diamonds. In coloured diamonds, square, radiant or oval are generally preferred.

Things To Consider While Investing

Get The Basics Right

Price transparency, quality certification, and expert guidance are to be considered before an investment-grade diamond purchase. Resale liquidity is another factor to be assessed before investment.

Simplicity Is Lucrative

Initial investments in Round, 1.01 to 1.49 carat, D-H colour, IF-VS2 clarity, Excellent to Very Good Cut, diamonds have good appreciation values. Coloured diamonds are best left to expert collectors and billionaire investors. The coloured diamond market lacks price transparency. Hence, it can be difficult to resell by novice investors.

While diversification might seem more lucrative, an investment portfolio specialising in round investment-grade diamonds is recommended by experts.

International Market Access

Establishing a trustworthy partnership in diamond trade is tricky. It is vital to have knowledgeable advisers and access to international diamond markets and pricing. For great returns, an industry expert who has the know-how of direct buy/sell trading in the international market is necessary.

Transaction Costs

Before buying, investigate the bid/ask spread and transaction costs. These expenses will cost around 2-5% of the diamond, depending on the shape and size.

The reality of buying and selling of diamonds is complex. Lack of transparency and tradability are some of the major hurdles facing diamond investment. Investing in something lucrative is always risky and is speculative. Diamonds follow the same principle. Although there are cons, the upside of investment in diamonds is higher. The key to success is to be informed and aware of the nitty-gritties of the diamond trade.

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