As the stock market has been volatile amid persisting geopolitical risks, increased inflationary pressure, and weak earnings, the buy-on-dip behaviour of retail investors has strengthened again.
However, this strategy has not been truly rewarding for investors as data reveal that even though mutual funds have been deploying more cash amid the ongoing correction over the past two years, only a limited set of schemes have managed to beat fixed deposits on a two-year CAGR basis.
Buying the dips
According to brokerage firm Elara Capital, pure equity inflows during March–April accelerated nearly 40% versus the average monthly run-rate of the prior six months. This marks the third major “buy-the-dip” phase witnessed over the past two years, reflecting domestic investors’ continued buying market corrections.
The domestic market has been in a consolidation phase over the last two years, largely due to US tariffs, increased geopolitical tensions, weak earnings, stretched valuations, and the lack of AI trade.
The last two-year absolute return of the market benchmark Nifty 50 is just a little over 5%, while over the last year, the index has gone down by over 4%.
However, this period has seen strong inflows by domestic investors.
Brokerage firm Elara highlighted that the first surge in inflows came during October 2024 to January 2025, following the sharp correction after Donald Trump’s victory. The second spike was seen in July 2025 when markets retraced back to their 200-day moving average.
The latest phase has emerged during March–April 2026, following the sharp correction triggered by the US-Iran war, Elara pointed out.
All these phases of aggressive buy-on-dips show that every meaningful correction is followed by heavy domestic buying, even though the pace of inflows tends to normalise once markets stabilise.
Elara further underscored that this incremental liquidity is increasingly concentrated in the broader market.
“The acceleration in flows during corrections has been most pronounced in mid- and small-cap funds, both of which recorded fresh record-high inflows during March–April. This continued domestic participation remains a key reason why market breadth and recovery momentum have remained resilient despite global risk-off phases,” said Elara.
Is buying the dip rewarding mutual fund investors?
While mutual fund investors have been buying the dips aggressively, they have not been rewarded adequately.
Elara’s analysis shows most schemes have delivered returns below debt over the last two years.
“Over the past two years, while the buy-on-dips behaviour has helped markets rebound sharply from lows, the actual return profile across categories remains modest,” said Elara.
The brokerage firm highlighted that the median two-year CAGR returns only for mid, small and multicap funds are marginally above fixed deposit returns.
As per the data given by the brokerage firm, while mid, small, multi, and sectoral funds have performed better, a majority of them delivered less than 9% CAGR returns over the last two years.
“Assuming debt generated pre-tax returns of nearly 7–8% (or nearly 5–5.5% post-tax), only a limited set of equity categories and schemes have managed to outperform on a two-year CAGR basis,” Elara said.
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“Flows have become a key driver of returns, with categories attracting stronger incremental liquidity delivering relatively better performance. This is most visible in mid and small-cap funds, where sustained and accelerated inflows during corrections have translated into comparatively stronger returns versus other categories,” said Elara.
Elara’s data show that the median 2-year CAGR return of large-cap funds is 2.9%, while that of mid-cap funds is 8.7% and 6.1% for small-cap funds. Sector funds and multi-cap funds have delivered median 2-year CAGR returns of 6.7% and 6%, respectively.
The average 2-year CAGR returns of mid-cap funds is 8.3% and of sector funds is 6.1%. Rest have delivered returns in the range of 3%-6% on an average 2-year CAGR basis, as per the brokerage firm.
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Disclaimer: This story is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
