NEW DELHI: Diamonds may be a ‘girl’s best friend’ but it may not be the best investment in terms of returns. However, an investment in the sparkling stones does have its benefits, not least the bragging value and easy mobility with which it can be shifted from one place to another.
Over two decades, the average price of diamond per carat would have just doubled in price - from $19,100 in 1999 to about $29,000 at present. The problem with this calculation, however, is that even this is not accurate, as diamond prices vary according to 4 Cs: cut, colour, clarity and carat. The price of a 1-carat diamond ranges anything between $2,500 and $16,000, while prices of a 2-carat diamond can vary from $7,700 to $72,000. The bigger the diamond and the better its colour, clarity and cut, the more the cost.
Compared to this uncertain increase in value, gold increased in value by over 6.5 times in last 20 years, while the BSE Index went up by 10 times.
According to Rajiv Babbar, a diamond merchant and proprietor of Rose Jewels, “A diamond is a luxury and a luxury can never be termed as a great investment. You invest in it because you want it.” But then, there is also the case of the 184.5 carat ‘Jacob’ diamond, once owned by the Nizam of Hyderabad; the Nizam bought the diamond for Rs 46 lakh some 130 years ago, but it’s estimated to be worth Rs 400 crore today.
Over centuries, diamonds have proven to be the favourite investments of rulers, the nobility and rich émigré communities all over the world. The Jews of Europe, for instance, had a long history of storing wealth in diamonds as they could be concealed and shifted more easily than money or gold in times of crisis.
Analysts say that besides their looks and bragging value, diamonds as investment find favour with some because of the ‘SSD’ factor – the Size, Storability and Durability.
The first and the most obvious advantage diamonds have over bullion and cash is its size. The small size of a packet of diamonds makes it easy to conceal, transfer and keep. With small size comes better storability. So, a small envelope kept carelessly in a drawer could contain crores worth of stones. The famous Jacob diamond was kept as a paperweight by one of the Nizams, for instance. Lastly, the durability of diamonds is another advantage that makes it a favourite of discerning investors; diamonds are among the hardest things in the world and cannot be burnt or broken easily.
Besides, diamonds, like most possessions, can be insured and of course they are inflation-proof, though merchants like Babbar says the last attribute is no longer true.
“The problem is that because of the huge variation in retail prices, a dealer will always buy back a diamond from a consumer at a discount; so, unless you have a very long investment horizon, your investment, if encashed within a few years of purchase, may actually fetch you either the same value or a bit less,” explained Babbar, “In management terms, you can say the market is less than transparent in price terms with not-so-liquid tradability.”
However, Amit Banerjee, a merchant banker specialising in East Asian funds and who also gives wealth advisory services, says, “Diamonds are not for those who want to reap a quick buck. But as a real long-term investment, if the correct stones have been chosen, they can fetch huge returns.”