The recent turmoil in the financial markets after the collapse of Lehman Brothers and the sale of Merrill Lynch has rattled investors all over the world. They’re wondering if they should stay invested or pull out of the market.

“Investors are reacting with extreme caution. There’s an obsession with capital protection, which should’ve been there when the Sensex was 21000,” says Swapnil Pawar, director, Park Financial Advisors.

The basics remain the same though. Any investment will depend upon the investor’s current financial position, financial goals and risk appetite.

“If you have an investment strategy, stick with it. If you plan to invest in equity, continue in a staggered fashion,” says Amar Pandit, director, My Financial Advisor.

Adds Mukesh Dedhia, director, Ghalla & Bhansali Securities, “Psychologically, people are willing to buy equities when the index is 21000 but when it reaches 12000, they want to sell instead. But you can’t time the market. Instead, if you re-balance your portfolio by booking profits at high levels and buying equity at low, you can make decent returns.”

In the short term, though, equities are likely to be volatile. Short-term investors and those with a low risk appetite could opt for liquid plus funds and fixed maturity plans (FMP), feel financial advisors.

Liquid plus funds are typically for three months, and are now giving returns of 7.5 per cent. Another option is three-month interval FMPs — in it, you can either exit after an interval, which is three months in this case, or roll-over your investments.

Or, if you can stay invested for a year, look at 12-month FMPs, offering post-tax returns of 9.5 per cent to 10 per cent currently. In comparison, bank fixed deposits will give post-tax returns of 6.5 per cent.

Equities do remain the best option for investors with a three to five-year horizon, feel financial advisors. Says Pandit: “The market is the safest when it looks the riskiest and it is the riskiest when it looks the safest. Today the downside is not much.”

Pawar too feels it’s a good time to enter equities as valuations are attractive. He favours sectors like banking and infrastructure, where the long-term fundamentals remain strong even though liquidity constraints have affected the valuations of banking stocks and high interest rates that of infrastructure stocks in the short term.

What about other asset classes? Well, advisors like Pandit and Dedhia are bullish on gold. “I’m expecting gold to double from these levels in the next two-three years because of the economic uncertainty. You don’t know how these financial wrongdoings will impact the economy. So on every decline, gold will attract me as a buyer,” says Dedhia. Pandit expects about 12 per cent returns from gold in the next few years.

As for real estate, it’s wait-and-watch time as prices are expected to fall. Also with interest rates at a high, “This is not for leveraged investors,” says Pawar.

Others are more wary though. Says Pandit: “Commodities trading entails leveraging so we’re advising clients to stay away from it. After all, two words can sum up the current mess: greed and leverage.”