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Gem of an investment?

Investing in precious stones is considered to be fraught with risks, and with good reason, writes Sanjeev Sinha.
Hindustan Times | By Sanjeev Sinha
UPDATED ON APR 10, 2008 11:52 PM IST

Is investing in gems truly a sparkling venture? Investors and analysts, over the years, have been baffled by this question. Although the prices of some high-quality precious stones are said to have shown considerable appreciation in recent years—150-200 per cent during the last five years—gemstone investing per se is considered fraught with risks. And not without reason. The gems market itself, in fact, poses several major problems for the small investor/speculator.

For example, when you buy a stone, it can be difficult to know exactly what you are buying, as there are many clever gem substitutes and enhancements, many of which are difficult to detect even for experts.

Besides, grading and pricing of gemstones are difficult and require considerable experience and training. “The gemstone market is highly illiquid when compared to the financial markets, commodities, or even real estate, and different dealers’ valuations may vary considerably,” informs Amit Sarup of Religare Securities.

A majority of experts, therefore, feel the act of buying precious stones is somewhat similar to the act of investing in art. In their view, it is best to buy precious gems and stones because you like them and find them beautiful rather than aim to use them solely as a form of investment.

Says Kamal Gupta, chairman and managing director of the Delhi-based PP Jewellers Group: “Gemstones are a good buy if you are in a mood to splurge. They also carry an additional aura of mystique and are recommended for various star effects on our body. But, strictly speaking, gemstones shouldn’t be considered for investment simply because they don’t have any resale value.”

The use of gemstones, in fact, is largely culture-based, and in India nobody would like to wear a stone that has already been used by someone else. Thus, except for really rare, unique gems and where the buyer has bought them from the right source and knows where to sell them back, they’re useless as an investment.

One may, however, consider buying gemstones knowing well the risks involved. “One safe way to buy gemstones is to purchase them when they have been used in any jewellery. This enhances their value,” says Gupta.

Significant returns may also be realised when an investor buys a large, uncut and coloured stone, and then sells it for a higher price. “The best stones to buy are the ones that look beautiful when you wear them. Ones that do not wear out fast in time, like rubies and sapphires,” says Mihir Shah, partner at the Chennai-based diamond merchants N Gopaldas & Co.

According to the Mumbai-based Gitanjali group, original Burmese rubies have appreciated by 30 per cent in the last 24 months, while emeralds in all categories have gone up by 15–25 per cent. And the lack of availability has pushed the prices of the top-quality Kashmiri sapphire by 30 per cent. Those who see some value in gemstone investing argue that it diversifies investors’ portfolio at least. “Keeping in mind that gemstones are rare and beautiful objects, they generally enjoy good demand and yield good returns over a long period of time. Also, in view of the current volatility in stock markets, diversification in such investment options can minimise portfolio risk as well as losses,” says Ashish Kapur, CEO, Invest Shoppe.

There is a word of caution, though. “Like all other forms of investment, you may require personalised advice of a good professional,” he says, adding, “gemstone investment in any case should not exceed 10 per cent of your total portfolio!”

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