Fund sales in the third quarter plummeted to their lowest level since 2008, according to the Investment Management Association.
Net retail sales fell by 65 per cent to £2.6bn in the third quarter compared with £7.5bn in the same period last year.
Gross retail sales through fund platforms fell from £3.3bn to £3bn the lowest level since February 2010 and below the monthly average of £3.9bn for the previous 12 months.
Funds under management fell by 3 per cent from £550.9bn in August to £546.7m in September. UK corporate bond was the best-selling sector , with net retail sales of £216m, the highest level for corporate bonds since September 2010. The sector has seen a recent surge in interest, moving from ninth in August to the top spot.
UK equity income was the second best seller in September for the second consecutive month and cautious managed stayed in third place for the second month.
UK gilts were placed fifth with net retail sales of £111m being the highest for the sector since December 2008.
Outflows were largely concentrated in equity sectors due to the eurozone sovereign debt crisis.
Equity funds saw net outflows of £175m, the second-biggest monthly outflow since February 2009.
Asia Pacific excluding Japan had the biggest net outflows in September at £164m followed by Europe excluding UK with £92m, North America at £78m and UK all companies on £65m.
IMA chief executive Richard Saunders says: “Investors were cautious in their asset class choices in September, with bonds and balanced funds the best-selling assets.”
Whitechurch Securities managing director Gavin Haynes says: “The fall in sales is dramatic but no surprise, given the volatility in markets.”