Sales of retail funds dropped by £3bn to £17.6bn last year, according to figures from the Investment Association.
The IA’s monthly statistics for authorised investment funds revealed that net retail sales reached £17.6bn in 2015, against £21.6bn in 2014.
Fixed income funds also experienced a fall, dropping sharply to a record net retail outflow of £519m in 2015, compared with a net retail inflow of £1.5bn in 2014.
However, overall funds under management reached a record high of £871bn in 2015, against £835bn in 2014.
Equity was the best-selling asset class for the second consecutive year, with net retail sales of £8.4bn.
The IA also reported record retail sales of tracker funds in 2015 of £5.4bn, with funds under management hitting an all time high of £108bn.
It was also a record-breaking year for money market funds, with net retail sales of £591m.
UK equity income was the best-selling IA sector for the second year running, with net retail sales of £4.3bn.
Guy Sears, interim chief executive of the Investment Association, pointed out that these record levels were reached despite market uncertainty around China, commodity prices and central bank interest rate policy throughout 2015.
“After a slow start, net retail sales bounced back in the final three quarters of the year with investors favouring equity products, particularly European funds and those with an income focus.”
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European equity funds were the best-selling in 2015 with record net retail sales of £4.5bn, up from £221m in 2014.
Global equity funds were the second best-selling region with net retail sales of £2.2bn in 2015, down from £3.2bn in 2014.
The UK followed in third place, with net retail sales of £1.9bn, down from £5bn in 2014, making it the third best-selling equity fund region of 2015.
Matthew Harris, director at Fife-based Dalbeath Financial Planning, said he was not surprised by these figures.
He said: “The market downturn since May 2015 will have undoubtedly spooked some investors and caused some panic-selling. This probably explains the bulk of the year-on-year fall.”
He said tracker funds are becoming a larger part of investment portfolios because of the cost advantages they provide, adding that “asset allocation is the most important factor to focus on rather than stock selection”.
“We are less sure whether the focus on equities, and particular UK equity income, shown in these figures is a good idea.”
Mr Harris argued UK investors have “too much of their money than is healthy tied up in the UK stockmarket”, and should instead ensure their portfolios are diversified.