1. Familiarise yourself with a fund's mandate before you add it to your portfolio. If you are a risk-averse investor and not a market-savvy one, large-cap funds which take cash calls and multi-cap funds which dynamically shift their market-cap segments would be good bets for you.
2. Stick to the SIP route at relatively high market levels and stay away from lump-sum investments to protect yourself against the pitfalls of bad timing. Most equity funds in India only target index outperformance and do not promise to protect you from losses if the entire market plunges into a bear phase.
3. If you are confused with the plethora of risk-containment strategies (cash calls, hedges, market caps and dynamic allocation), don't worry. Simply arrive at a fixed asset allocation between equity, debt and gold you are comfortable with and make sure that you rebalance your portfolio according to it every six months. Instead of following simple thumb rules like 100 minus your age, try to arrive at an equity allocation based on your ability to handle losses on your portfolio. Or take services of a good advisor who can help you tailor such an allocation pattern.
Handling the asset-allocation part will take care of much of the risks from your equity exposure and let you sleep easy at nights, without worrying about whether the market is flashing green, amber or an ominous red!