Investors steering clear of mutual funds

Last year sales in mutual funds plummeted by more than 40 per cent to their lowest level since 1995.

10:38 12 January 2005

Last year sales in mutual funds plummeted by more than 40 per cent to their lowest level since 1995.

Mutual funds are managed by investment companies, with savers buying shares in the fund and its managers investing this capital in a range of products depending on the goal or structure of the fund (i.e. stability, aggressive growth, hedge funds etc).

Figures out later this month are expected to show that net sales of unit trusts and open-ended investment companies fell 3.4 billion in 2004.

ISA sales have also plunged to their lowest level since they were launched in 1999, falling from 3.5 billion in 2003 to a low of 2 billion last year. In 2000, ISA sales peaked at 11 billion.

The head of research at Hargreaves Lansdown, Mark Dampier told the Telegraph newspaper: "It's been a dire year. It's insane because investors have missed out on the best equity returns for years."

He added: "As usual, people's timing is all wrong. They think the equity market is just about the FTSE100, which it isn't."

The freefall of mutual funds came despite last year's recovery in the stock market when the FTSE All-Share index rose by nearly 13 per cent, around the same annual rise as house prices.

And with most commentators not expecting house prices to rise more than four per cent in 2005, equities are an increasingly attractive investment.

Fund groups blame investors' lack of trust in the industry and the Government's decision to abolish the dividend tax credit on equity ISAs.