Blend core SIP strategy with dip-buying for tactical market gains

Seasoned investors, who understand the context of a downturn, are more likely to benefit from dip-buying than those who act impulsively or without a disciplined plan

Trading volumes in exchange-traded funds (ETFs) on the National Stock Exchange (NSE) typically spike when the Nifty drops more than 1 per cent, according to media reports. This indicates that savvy investors use such declines as buying opportunities.

 

ETF advantage

 

ETFs are well-suited for dip-buying as they offer intraday liquidity. “Unlike mutual funds, which are priced only at day-end, ETFs trade in real time, allowing investors to act immediately during sharp intraday declines,” says Arun Patel, founder and partner, Arunasset Investment Services.

 

ETFs have low expense ratios and don’t have an exit load. They also provide diversification so that investors don’t have to bet on individual stocks.

 

Upside of buying the dip

 

Buying after a market fall enables investors to acquire assets at more attractive valuations. “Investors get more value for the same investment. It can help lower their average cost of holdings,” says Patel.

 

Behaviourally, the strategy converts volatility into opportunity. “If done calmly, dip-buying can enhance long-term returns,” says Sanjeev Govila, certified financial planner and chief executive officer, Hum Fauji Initiatives.

 

Further dips possible after buying

 

Dip-buying during bear phases or early in a sell-off can backfire. “It often amounts to catching a falling knife. Investors may misread temporary bounces or technical signals, only to face deeper declines,” says Patel.

 

“Markets can continue declining after purchase, testing the investor’s patience,” says Govila. If the trend persists, many investors tend to throw in the towel and exit at a loss.

 

Deploying too early leaves investors without dry powder for better opportunities that may come later during the downturn.

 

Evaluate the context

 

Assessing the context is critical. “Dip-buying is most effective when you can anticipate a turning point — when central banks or governments are likely to step in with supportive measures like rate cuts, liquidity infusions, or fiscal stimulus that may help stabilise the market,” says Patel.

 

Govila suggests the 5-10-15 rule. “A 5 per cent decline is usually noise, 10 per cent declines deserve attention, while 15 per cent plus declines often present genuine opportunities,” he says.

 

Deployment strategy

 

Avoid overcommitting by setting up a dedicated ‘dip fund’. “Create a separate pool of, say, 5–10 per cent of your total equity allocation, earmarked for such opportunities,” says Govila.

 

Staggered buying reduces regret and improves cost-efficiency. “Follow the 25-50-25 strategy: Deploy 25 per cent on the first significant decline, 50 per cent if the market falls further, and reserve 25 per cent for extreme scenarios,” he says.

 

Rule-based triggers tied to valuations or index levels can help avoid emotional decisions.

 

Investors should write down their investment rationale before placing such bets. “Having a written plan, a pre-defined buying ladder, and a long-term mindset rooted in asset quality helps build conviction,” says Ram Medury, founder and chief executive officer, Maxiom Wealth.

 

Be prepared for a long wait

 

Dip-buying can at times require patience. If the dip occurs during a strong uptrend or is triggered by a temporary change in sentiment, recovery can come within months. After the taper tantrum of 2013, the market rebounded strongly within a few quarters as macro stability returned. The Covid-19 crash of March 2020 also saw a swift rebound within a year.

 

If the decline is part of a broader correction or triggered by macroeconomic stress, the wait can be longer. After the 2008 global financial crisis, Indian equities needed nearly two years to recover.

 

“Historically, markets have taken 12–30 months to recover fully after meaningful corrections. And sector-focused dips may take longer to play out than broad-market dips,” adds Govila.

 

Combine with SIPs

 

Those who buy on dips should not abandon systematic investment plans (SIPs). “SIP should be the core strategy for retail investors because it is systematic, discipline-driven, and avoids the emotional pitfalls of market timing,” says Medury.

 

SIPs should not be paused during volatile phases. “Monthly savings done through SIPs provide the power of compounding if done continuously for the long run,” says Swati Saxena, founder and chief executive officer, 4Thoughts Finance.

 

It is best to integrate the two approaches. “SIPs will provide the benefit of rupee-cost averaging and you can also do opportunistic buying during market downturns,” says Abhishek Kumar, Sebi-registered investment adviser and founder, SahajMoney.com.

 

Saxena suggests routing monthly savings through SIPs and lump-sum investing through dip investing.

 

Key mistakes to avoid

 

Experts say that not every 5 per cent correction is a buying opportunity. Sometimes, those corrections are justified — by lower growth, tighter liquidity, or global shocks. “Buying prematurely in a falling knife scenario (for example, smallcaps in 2018) can hurt,” says Medury.

 

He suggests using valuation indicators (like P/E relative to historical averages), macro cues (like crude oil spike, GDP growth), and technical support zones to assess the depth of the downturn.

 

Do not engage in dip-buying using leverage, emergency funds, or money needed for short-term goals. Placing heavy bets on a specific sector can also backfire.

 

Kumar warns that investors should not replace analysis with speculative buying.