DI AMOND VIDYALAXMI T here is a common thread running through the spendinghabits of legendary singer Lata Mangeshkar and Renuka Jagan- nath, a Mumbai-based housewife. Both share a fervent interest in diamonds. They are part of a growing tribe of faithfuls. “Demand for diamonds has shown consistent growth over the past three years, and this year too,” says RK Nagarkar of Tribhovandas Bhimji Zaveri - The Original, a leading jewellery company. But unknown to Jagannath, diamonds pale before gold in terms of investment returns for reasons ranging from ambiguities over pricing to grading and buyback opportunities. Missing price mechanismDiamonds, unlike gold , l ack a standa rd benchmark pricin g and are often sold at the ‘asking’ rate. The Rapaport Diamond Report, an industry publication, outlines the price of diamonds based on the five Cs—cara t, c olour , cl arity , c ut and cost. But the price mentioned remains on paper. Jewellers are entitled to a certain discount, which varies. The result is that a di- amond ring worth `30,000 at one jeweller could be cheaper or costlier at another. “Rapaportprice is a loose benchmark. The mean price is based on external conditions such as demand-supply and foreign exchange,” says Vijay Bhambwani, CEO ofbspli ndia. com, an inve stmen t a dvisory . Diamonds also lack a strong ‘price discovery’ model as they are yet to grow into an investment option like gold, which is lapped up during marriages or sold during crises. The lack of “a standardised benchmark for pricing is a deterrent to the industry”, says Anuj Rakyan, managing director of Ananya Jewels , ad ding that efforts to establish a d aily pricing index similar to that of gold by a few experts fizzled out. GradingdifficultiesDiamonds are best graded in raw form. Once turned into jewelle ry, it’s hard to detect their colour and clarity. “Even when a lab grades a diamond, the certificate comes with a disclaimer that the actual colour and c larity may differ,” says Rakyan. The completely colourless variety is graded from D to V, with D being the best. As re gards clarity , the clearest diamond is the rarest and hence, the costliest. Such a diamond is graded as internally flawless (IF) while less superior vari eties hav e grades of very very slig htly included (VVS1 and VVS2), very slightly included (VS1 and VS2), slightly included (SI1 and SI2) and imperfect (I1, I2 and I3). “As one moves across the grades, the prices may rise by `600-70 0 per c arat. But it’s difficult for a customer to check these aspects over the counter,” says Mehul Choksi, chairman and managing director of jewellers and diamond merchants Gitanjali Group. Selling is no picnicMany jewellers are hesitant to buy back a diamond because they may be unable to cough up money. “Even af- ter ascertaining the value of a diamond, I may be unable to buy because I may not have [so much] cash at that point of time,” says Rakyan. There are also concerns over qualit y. Well- known retailers such as Tribhovandas, Tanishq and Gili refuse to buy diamonds not sold by them for this reason. They promise to buy back their diamonds at 85% of the pre- vailin g ra tes minus the making charges . Tha t shrivels to nearly 75% in the case of small- time jewellers. Small- and medium-sized jeweller s do accept all diamon d jew ellery , but at a h uge discount. “The market was flooded with American diamonds of poor quality two decades ago. Jewell ers h ave also encountered stunni ngly crafted fake diamonds that are difficult to identify even with several lab tests,” says Bhambwani. Adds Kartik Jhaveri, a certified financial planner, “This is a business based on trust. Certain merchants don’t even offer a quality certificate. Unless you know the diamond merchant and are aware of the nitty-gritty ofthe business, don’t step into it.” The bottom line is that if you are buyingdiamonds for their ornamental value, be warned of t hese discla imers. If in vestment is on your mind, think twice, given the ambiguity and lack of standardisation in buyback d eals. “For an investment vehicle to be successful, investors should know that their capital is safe, they can withdraw a certain sum or the entire corpus at any point of time. They should also be able to track prices daily and trade on a regulated platform. Diam- onds must fulfil these criteria to qualify as an investment option,” says Bhambwani. Please send your feedback to [email protected]Don’t go by sparkle alone Peop le va lue diamonds highlybecause they perc eiv e the m to be sca r ce . The y’ r e no t”BARRY J NALEBUFF, ADAMM BRANDENBURGER IN THEIR BOOK CO-OPETITION5 Cs, of diamond pricing Carat Colour Clarity Cut Cost Though treasured by most, diamonds do not make for as good an investment as gold. Not in the short term, certainly not in the long term. Returns greater than one year are annualised. Returns calculated as on 24 Dec based on ABN AMRO-composite diamond price index & Bloomberg gold index; Unlike gold there are no universal benchmark for diamond prices Gold vs Diamond Returns (in $ terms) 14.63% 24.97% 1-year 27.64% 2-year 19.39% 3-year 22.14% 4-year 22.29% 5-year 3.15% 0.62% 1.15% One-y e ar r eturns ar e impre ssiv e, but way low er than g old’s 1.52% Alternative Investment The Economic Times Wealth, December 27, 2010 43 GOLD DIAMOND
