Should you stay away from the stock market right now?

It's been a tough three years for retail investors. With the Bombay Stock Exchange Sensitive Index, or Sensex, giving barely 4 per cent annual returns, even lesser than the inflation rate, it is very difficult to keep waiting.

No wonder, mutual fund managers have been net sellers consistently, even when the Sensex has been climbing this year.

For example, the Sensex has gone up 24.6 per cent this year, largely driven by inflows of Rs 117,264 crore (Rs 1.17 trillion) from foreign institutional investors.

On the other hand, mutual funds have been net sellers of Rs 20,032 crore (Rs 200 billion) due to selling pressure from retail investors.

One can't blame the investor either. With the Sensex falling 25.05 per cent in 2010, an investor who had invested in the index two years back is still sitting on a marginal loss. This way, he cuts his losses.

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The equity fund manager, on the other hand, finds himself in a tough situation. When the markets are doing well, he should be getting more money to invest and generate great returns. Instead, he finds investors fleeing.

As Akshay Gupta, managing director & chief executive officer (CEO) of Peerless Fund Management Company, puts it, "After staying invested for, say, two to three years, if investors do not see any returns, they exit at the first opportunity, even with small gains."

In such circumstances, the fund manager ends up being helpless, says Hemant Rustagi, CEO, Wiseinvest Advisors.

"It is a tricky situation. The fund manager needs to have continuous inflows, to give good returns. Otherwise, even if the portfolio is good the returns do not reflect this many a times. That is why, the fund manager has to keep churning, because most of the funds are open-ended schemes and the fund manager cannot stay invested for too long."

Some wealth managers also blame mutual fund managers for being too conservative. A wealth manager with a foreign firm says fund managers do not have the guts and the conviction to invest aggressively in mid or small caps.

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"This is why a majority of mutual fund portfolios are invested in index stocks. They have a set mandate - beat the index. They also tend to buy into tried and tested scrips, which have very little chances of giving high returns," he says.

So, whether it is the assets or mandate, the fund manager is always cramped and unable to perform.

Things do change when markets rise for sustained periods. Again, money comes in when markets have run up substantially and fund managers end up entering an expensive market.

Like Fred Schwed in his investment classic 'Where are the customers' yachts?' writes, "Nearly all of us have a secret hankering for another boom. Another little orgy wouldn't do us any harm. This is quite human because in the last boom we acted so silly... We either got in too late, or out too late, or both. But now that we are experienced, just give us one more shot at a good reliable runaway boom."

Unfortunately, there is nothing called a 'good reliable runaway boom'. So, investors should learn to stay put even in bad . That's the only way to make money...