SIP for diamonds soon. Should you invest?

Have you ever wanted to invest in diamonds? Well, you can soon invest in the precious stone as the Indian Commodity Exchange (ICEX) will launch a systematic investment plan (SIP) for retail buyers to acquire diamonds. SIPs start at Rs 900 a month for about two and a half years.

When investing in a financial product, people look for two things: returns and an exit route. In the case of diamonds, neither of these factors appears particularly favourable. Over the past five years, diamonds haven't appreciated across the board. Given the absence of an organised resale market, investors have also been unable to exit. However, the diamond index is likely to ensure that investors can enter and exit the market in an organised manner.

There's no guarantee that diamond prices will rise steadily even as trading on the exchange picks up. "As a retail investor, you should not invest in diamonds for the purpose of investments to make profit but align it to consumption goals," explains Jignesh Mehta, Founder and Managing Director at Divine Solitaires.

The exchange platform promises to eliminate most of the confusion regarding resale value. Trading will be done at wholesale prices, which is currently 30-35% lower than retail prices. So, if you are willing to invest in a diamond worth Rs 1,00,000, you can get a gem of the same value for as low as Rs 75,000 on the ICEX. Furthermore, the diamond you receive will be DeBeers certified.

Over the past five to seven years, the compounding return from gold and diamond has been nearly equal. Indian investors are more inclined to invest in gold because they assume it will get them higher returns. However, this does not mean you should replace gold with diamonds in your overall portfolio. Instead, diversify based on how the product aligns with your goals and not just its returns.