Plunging stock markets and a loss of appetite for risk mean that 2008 is set to be the first year since 1992 that private investors have sold more equity funds than they have bought.

Figures from the Investment Management Association, the industry trade body, show that in the first seven months of this year investors were net sellers of share-based funds to the tune of more than £1.5 billion.

A spokeswoman for the IMA said: “Unless there is a dramatic turnaround in the final months of 2008, it looks like it will turn out to be a year in which investors were net sellers of equity funds. The only other time in the past 16 years that this has happened was in 1992 - the first year in which records were kept.”

Year on year comparisons show just how dramatic the move out of equities has been. This July there was a net outflow of £669 million from equity funds compared with a net inflow of £1 billion in July 2007. In the calendar year 2006, investors bought a net £8 billion of equity funds. This shrank to £5.2 billion in 2007 while this year the figures for fund purchases are in negative territory.

Mark Dampier, of Hargreaves Lansdown, the independent financial adviser, said: “Investors have been spooked by a wave of bad news on all fronts. There’s a credit crunch story in every paper and news bulletin, property prices are falling, the stock market is falling and people are braced for the first recession since the early 1990s. Many are simply too scared to invest.”

The one silver lining to this generally gloomy outlook for fund sales is that private investors have, in the past, shown themselves to be poor judges of when to enter and exit the stock market. Their biggest-ever purchases of equity funds were made in 2000, the year when the dot.com bubble burst and ushered in a three-year bear market. Their lowest level of purchases in the past decade came in 2003 and 2004, years when stocks were cheap as the UK emerged from the bear market and a new bull market began.

Mr Dampier says: “If history is anything to go by, investors’ current lack of appetite for equity funds could be seen as a strong buying signal. I think we are close to the bottom of the current dip, but there could be some further shocks this autumn before the market starts to move decisively upwards again.”

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