When it comes to investing, Indians have long held a deep connection with precious assets, especially gold and diamonds. Both of these are seen as symbols of wealth, status, and tradition. However, when considering them as investment options, which is better? In this blog, we will break down the comparison between gold and diamonds in simple terms, tailored to the Indian context.
1. Gold and Diamond Investments in India
- Gold: Gold holds immense cultural and economic significance in India. It is not just bought for investment but also for religious and festive occasions, weddings, and as a form of saving. You can invest in gold through jewelry, coins, bars, or even through modern means like Sovereign Gold Bonds and Gold Exchange-Traded Funds (ETFs).
- Diamonds: Diamonds are often considered a luxury purchase in India. People mostly buy diamonds for their beauty and use in jewelry, but some also see it as an investment. However, unlike gold, diamonds have a more complex pricing structure based on their quality and market demand.
2. Historical Performance in the Indian Market
Gold
- Consistency: Gold has been a trusted investment in India for centuries. In times of economic crisis or inflation, Indians turn to gold as a “safe haven.”
- Data: In the last decade, gold prices in India have steadily increased. For example, gold prices were around ₹28,000 per 10 grams in 2013 and have risen to ₹60,000+ per 10 grams by 2023. This shows gold’s potential as a stable investment.
- Liquidity: Gold is highly liquid in India. You can easily sell gold at the current market price, whether it is in the form of coins, bars, or even jewelry.
Diamonds
- Rarity and Luxury: Diamonds are seen as a luxury good rather than a primary investment in India. Their value depends heavily on factors like cut, clarity, carat, and color.
- Data: The price of diamonds has not shown as consistent growth as gold. For instance, a 1-carat diamond, which cost around ₹4-5 lakh in 2013, now costs ₹5-7 lakh in 2023, depending on its quality. While there is some growth, it has not been as significant as gold.
- Liquidity: Diamonds are less liquid than gold. Finding a buyer who offers the right price can be challenging, and selling diamonds usually involves paying a commission to the jeweler or middleman.
3. Key Factors for Indian Investors
Value Retention
- Gold: Gold tends to retain its value, especially during uncertain times like inflation, economic downturns, or currency fluctuations. For Indian investors, gold is often seen as a hedge against inflation.
- Diamonds: While diamonds are rare and precious, their resale value can fluctuate based on trends and demand. They do not have the same level of value retention as gold.
Cultural Significance
- Gold: In India, gold is deeply intertwined with culture, festivals (like Diwali and Akshaya Tritiya), and weddings. Many Indian families buy gold as a form of savings and future security.
- Diamonds: Diamonds are typically purchased for their beauty and status. While diamonds are considered prestigious, they do not carry the same cultural weight as gold in India.
4. Resale and Liquidity in India
- Gold: In India, selling gold is easy. You can sell gold to almost any jeweler, and with schemes like the Sovereign Gold Bonds, you can even redeem them with the government. Gold also enjoys a high level of liquidity in urban as well as rural areas.
- Diamonds: Selling diamonds can be a complicated process in India. Jewelers may offer lower prices for resale due to the subjective nature of diamond pricing, and it can be hard to find the right buyer quickly.
5. Investment Flexibility
- Gold: Gold offers multiple investment avenues in India, from physical gold to modern financial products like Gold ETFs, Gold Mutual Funds, and Sovereign Gold Bonds, which give an additional 2.5% interest per annum.
- Diamonds: Diamonds are mostly bought in the form of jewelry, and there are limited options for investing in diamonds purely for financial gain. Most diamond purchases are considered luxury expenses rather than a way to grow wealth.
6. Taxes and Costs
- Gold: In India, buying physical gold comes with Goods and Services Tax (GST) at 3%. However, if you invest in Sovereign Gold Bonds or Gold ETFs, you avoid the hassle of storing physical gold and enjoy tax benefits on capital gains if held until maturity.
- Diamonds: Diamonds also attract GST at 3%. Additionally, when you sell diamonds, there are often high resale commissions and costs, making it less favorable as a liquid investment.
7. Which is Better for Indian Investors?
Based on the comparison, gold emerges as the better investment option for most Indians:
- High liquidity: You can easily buy and sell gold anywhere in India, whether through a jeweler or financial markets.
- Stable value: Gold has shown steady growth over the years, making it a more reliable investment, especially in uncertain economic times.
- Cultural significance: Gold holds a special place in Indian tradition, making it a trusted asset for most households.
Diamonds, on the other hand, are better suited for personal enjoyment and luxury purchases rather than as a reliable investment. Their resale value is more uncertain, and selling them can be difficult compared to gold.
Conclusion: Gold is the Preferred Choice for Investment in India
In conclusion, while both gold and diamonds have their unique appeal, gold stands out as the preferred choice for Indian investors. It offers higher liquidity, better value retention, and several investment options, from physical gold to bonds and ETFs. Diamonds, while beautiful and prestigious, are more suited for personal use than for growing wealth.
If you’re looking to invest and build a secure financial future in India, gold is the clear winner!