The Sensex has fallen by around 34% from its peak of 21,113 in January 2008, and analysts are talking about a further fall to 12,000 levels, with some pessimists not ruling out the index at 10,000 levels.
At the same time, the Reserve Bank of India’s (RBI) measures to curb inflation by reducing demand has resulted in interest rates on the 10-year bond crossing 9%.

Banks are now offering 9.5% on fixed deposits. Given the way interest rates are moving, fixed income returns could touch double-digit levels soon. So, the big question before investors is: should they choose equity or fixed income
“Investing in debt is risky in the long-term, while equity carries only a short-term risk. You can go for debt if you are looking at a 2-3 year time horizon,” says financial planner Gaurav Mashruwala.
If you look back to the mid-90s, financial institutions offered as much as 14% on term deposits, but soon rates tumbled and interest rates fell to 8% levels when these deposits came up for renewal.
If you are looking to park a large sum at the moment, you can look at a liquid fund for the next 3-6 months time horizon. “You may not earn great returns, given the soaring headline inflation, but at least your capital will be protected,” contends Transcend India’s director Kartik Jhaveri.
Remember, although returns from debt funds may be high now, but they may be negative after adjusting for inflation
If your outlook is short term, you can definitely look at debt. If you park your money in fixed maturity plan (FMP), or even bank deposits, you will at least get 3.5%. You can consider FMPs instead of FDs as they offer relatively better returns. If you fall in the higher tax brackets, FMPs are advisable, else you can consider FDs.

But if it is long-term investments that you are looking at, then there is no justification for any panic reaction to the market crash. “There is nothing abnormal about what is happening this time. The market will pick up later. Investors can learn from the experience that comes with losing money and can be better prepared next time,” feels Mr Mashruwala.
Typically, financial advisors recommend staying invested till the storm blows over, but adopting a clear strategy, that is, knowing what kind of funds could work for you can cushion the impact of the turbulence
SIPs average the ups and downs of the equity market. Volatility in the market cannot mask the fact that equity delivers higher returns compared to most asset classes, but investors need to understand that this can happen only in the long term.

“If you did a one-year SIP last year, it would have no merit given the market downturn. If you do an SIP for at least five years, then you will experience the fruits of one entire equity cycle,”.
: “SIP can be a good bet for a common man in any market situation. You should go for a SIP in an equity fund if your goal is 7-9 years away.”
The next aspect that you should consider is the kind of fund that would suit your needs. In a falling market situation, experts say, you should stick to diversified equity funds which are less riskier than sector-specific funds.

You can look at sector funds provided the top-five holdings belong to a renowned large-cap company. “Any day, a large-cap company will bounce back from its lows faster than mid-cap or small-cap companies.
“Large-caps are definitely safer, especially if you are a novice in the market. Such investors should stick to index constituents.
Index funds are the safest, followed by large-cap funds, mid-cap as well as small-cap and contrarian funds, thematic funds and sector funds — in that order.”
International funds could be a good form of diversification and gold funds can be considered too.