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Hi Vinit,
Getting the optimal caching setup really has to be looked at on a case by case basis. However, in most cases you'll stand to gain between good, to excellent performance benefits from using the caching feature. Especially if you are using older hardware, and/or have a lot of content on your site.
Only thing to keep in mind is that modules and blocks that require real time access should not be set to use caching. Things like the login block, and I have even noticed a few quirky things happening with the polls module cached. Apart from this it is totally up to you as to what caching levels you want. More is not necessarily better, as all you are really wanting to do is increase performance by decresing server load.