The lure of buying diamonds might be in their glitter, but you can even buy diamonds in the electronic form, through the Indian Commodities Exchange (ICEX) Ltd as derivative contracts. ICEX is a Sebi-registered commodities exchange that offers diamond futures contracts for 30 cent, 50 cent and 1 carat diamonds.
What is it?
Like in other exchanges, you can buy and sell these contracts, which are priced at the wholesale market rate (ex-Surat) rather than at the retail price of polished diamonds. You can hold them in electronic mode or choose to take physical delivery. The contract units begin with 1 cent (100 cents make 1 carat). The shape, carat, colour, clarity, cut and other specifications will be mentioned as part of the contract. The standard contract has colour of ‘H’ level with VS2 clarity.
There are limits on the maximum order that can be placed per individual. You can even start with a small amount and invest via systematic investment plan (SIP) to own a 1-carat diamond. SIP route lets you buy smaller quantities.
For many who don’t have access to a trusted jeweller, this is an exchange-based platform to buy diamonds, which means the price discovery undergoes a process.
The diamonds are certified by International Institute of Diamond Grading and Research which is a De Beers Group company and hence, there is verification of the value of the diamond you take delivery for. You can also decide to sell the diamond back to the exchange.
Unlike the gold market, diamonds so far don’t have a standardised market against which you can check pricing. Discounts and negotiated prices can exist elsewhere too. Diamonds are available in various configurations whereas this exchange has only a specified configuration for each of the three underlying contracts of 30 cents, 50 cents and 1 carat diamonds. For example, if you want to buy a contract for a 1-carat diamond with a clarity that is, say, at a level lower or higher than VS2, you may not be able to. If your interest is primarily in buying diamonds for jewellery, once you receive the stones from these contracts, you will still have to go to a jeweller to make what you want. If you are buying them as an investment, one must first understand whether the commodity is rare enough to warrant a stable price rise through the years.
This platform can work well for those who are already well versed with diamond specifications and pricing or maybe use it for hedging. One should also to do a background check on the exchange, which is new, although being a Sebi-registered entity is an advantage. While supply of the diamonds is limited, it is not a standardised and systematic market for which price trends can be extrapolated meaningfully; a lot depends on individual diamonds and their demand.