Should Mutual Fund Investors Buy This Dip? Here Are Three Tips From Financial Advisors

Investor behaviour during a market fall sheds light on their perspective of market cycles and the larger story.

The Nifty 50 has fallen 8.7% from the peak, as it slipped below the 24,000 mark. Landing at a three-month low, the markets have been experiencing a broad correction after the record highs on Sept. 27.

India's benchmark stock indices, NSE Nifty 50 and BSE Sensex, closed at their lowest levels in over a month on Monday. The Nifty 50 settled 309.00 points lower, after it fell as much as 2.01% during the day, at 23,816.15—a first since Aug. 6.

Now, those investors looking to buy more units in the long term tend to look at market dips as opportunities to buy at a cheaper price. With a correction of over 5%, here are advisors' takes on buying this dip.

Rather than pouring out money when the market dips, having a certain ratio or system in place tends to work better.

Vinit Iyer, principal officer at Prudeno Wealth, generally recommends that for every 10% dip, investors can deploy 20% cash.

It is important that the funds go out in a paced manner and having a plan in place will also work in the long-term as markets react to various other cues.

"No one can catch the bottom and it's good to have a rule based plan. We have a 10% correction deployment strategy. With the worst falls, if one invests 20% for every 10% dip, they will be fully invested for the long term," he said.

When the markets dip, the tendency to accumulate units that may not align with the investors' goals is high. Despite wanting to benefit from the dip, it is important to ensure that paced and purposeful investments go out.

"It's hard to say how far the bottom is. Time in the market is better and timing the market is difficult. Anytime there is more than a 5% fall, it is a good idea to buy the dip," said Prableen Bajpai, founder of FinFix.

This fall being more than 5%, it is important to ensure that funds are deployed in a strategic manner.

"Something incremental makes sense. So many people have been waiting on the sidelines in an understanding that valuations are stretched. At this point, investors need to prepare for both price correction and time correction," said Bajpai.

Since the rock bottom is difficult to predict amid murky cues of geo-political uncertainty, one can pace their investments.

"One can set up an STP for the next few months because there is no clear strategy. Some incremental investments can be good as there are multiple triggers," she added.

The time horizon, goals and risk appetite of each investor are unique and one needs to ensure that their moves align with these. The actions tend to be different based on the investing route one has chosen.

"Investors who have SIP route need not worry about the timing. They will see peaks and correction. For those who want to invest in lumpsum, the correction is not over yet," said Pankaj Mathpal, founder of Optima Money Managers.

A correction not only calls for timely purchase of cheaper units but also for a review of one's portfolio and strategy.

"Investors should invest in multi-asset funds, hybrid funds and dynamic asset allocation funds. They can also invest in flexi caps and large caps if their horizon is more than five years. A short term STP is a good route as investment is made in a staggered manner," he said.