Sales of Isas plummet 46%

INVESTORS are continuing to shun investment funds with sales of Isas down 47% on a year ago. However, more money flowed into Isas in January than a month earlier, particularly into safer corporate bond funds.

Figures from the Investment Management Association show the net sale of Isas In January was £275m compared with £517m a year earlier. However, the figure was up 4% from £264m in December.

'Two years of disappointing returns from equities have made many people reluctant to invest in assets which may be more volatile in the short term,' Clare Arber, IMA's head of communications, said. 'However, there are signs that investors are balancing their portfolios by investing proportionately more in the UK income sectors.'

The next few months, known as the Isa season, are critical to the industry. Investors traditionally rush to use up their £7,000 tax-free allowance before 6 April.

Sales of bond funds to retail investors rose 9% between December and January. A study from Barclays Capital last week confirmed that bonds delivered a real return of 6% last year compared with a 13.6% fall in shares.

Independent financial advisers, however, warn against a knee-jerk reaction to recent performance. 'People unfortunately tend to chase last year's story,' Jason Hollands, of Bestinvest, said. Bonds may suffer this year if, as is expected, interest rates rise, he said.

Small investors were also picking funds from the UK all companies sector and shunning Japanese and UK smaller companies funds.

Gross fund sales, which also includes those to institutions, were down 24% from £4.6bn to £3.4bn, and even down 6% from £3.6bn a month earlier.

Institutional investors' favourite funds were from the UK all companies and North America sectors. The least popular were the UK smaller companies and global growth sectors.