Savers make switch to investment funds

Consumers paid a near-record sum into investment funds during 2010 as low interest rates made people look for alternative homes for their cash.

A total of £23.9bn was invested in UK-based unit trusts and Oeics (open-ended investment companies) during the year, once those cashing in their investment or moving it elsewhere were stripped out.

The figure was only slightly below the record £25.9bn that was paid into the funds during 2009, according to the Investment Management Association.

Sales of tax-free individual savings accounts (Isas) also enjoyed a strong year, with net investments of £3.9bn, the highest level since 2001.

Richard Saunders, the chief executive of the Investment Management Association, said: "Consumers continued to increase their investments at record rates in 2010, which was the second highest year on record for fund sales. And Isa sales were the strongest in nearly a decade."

There was a marked shift in preferences for equities during the year, with net sales of stocks and shares funds reaching £7.5bn, a level last seen in 2000, shortly after the FTSE 100 index of the UK's largest listed companies reached its highest ever level.

But while investors showed a strong bias towards UK and European equities a decade ago, their investments are now more diversified, with 20 per cent of all money going into global funds.

Bonds also remained popular, with people increasing their investments by £7bn during the year.

The combination of the strong inflows of cash and good investment returns, meant the level of funds under management had reached a record £578bn by the end of 2010, including money held for institutional investors, such as pension schemes.