Buying the dip: 5 tips to invest in equity amid corrections

According to the data issued by Association of Mutual Funds in India (AMFI) equity inflows from the systematic investment plans (SIP) touched an all time high of ₹14,276 crore. When it comes to making a comparison from previous years, March 2023 allocation rose to ₹20,534 crore up from ₹15,686 crore in March 2022.

There are various reason for such a hike is not only the dip in the market, these are as follows-

• The primary reason for such an increase in equity inflow is restricted debt regulations which draw investor’s attention to undervalued equity to park their investments.
• Market corrections make valued equities vulnerable to give better returns for investors which ultimately lead them to the opportunity for wealth creation.

Tips to invest in equity by following “buy the dip” patterns

"Buying the dip" is a strategy used in investing where an investor buys an asset after its price has dropped in hopes of profiting from a rebound. Here are five tips to follow for buying the dip:

Do your research: Before buying any asset, make sure you research the underlying fundamentals of the company or asset you're interested in. Look at their financials, earnings reports, and any other news that may affect their performance.

Set a target price: Determine the price at which you're comfortable buying the asset, which can be done by looking at historical price trends and identifying potential support levels.

Don't catch a falling knife: While buying the dip can be profitable, it's important not to catch a falling knife. Make sure the asset has stabilized and shows signs of a potential rebound before buying in.

Diversify your portfolio: It's important to have a diversified portfolio to mitigate risk. Don't put all your eggs in one basket, even if you believe a particular asset is undervalued.

Have a long-term perspective: Buying the dip is a strategy that requires patience and a long-term perspective. Don't panic if the asset continues to drop in price after you buy in. Stick to your research and target price, and be patient as you wait for the asset to rebound.

In conclusion, the recent surge in equity fund inflows since 2022 highlights the growing interest among investors in the stock market. While buying the dip can be a profitable strategy, it's important to approach it with caution and follow certain tips. These tips include conducting thorough research, setting a target price, avoiding catching a falling knife, diversifying your portfolio, and having a long-term perspective.

By following these tips, investors can potentially profit from market dips while minimizing their risks. However, it's important to remember that investing in the stock market always involves some level of risk, and past performance is not a guarantee of future returns. Therefore, it's crucial to stay informed and make informed decisions based on your personal financial goals and risk tolerance.

Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com

Disclaimer: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision.