The July market fall was reflected in the latest IMA figures, showing a £1.8bn net outflow in UK domiciled funds.
Outflows in equities were the major cause, reaching £2.9bn for the month.
UK funds under management for July were 1.6% down on the previous month, to £456bn, but still 22% higher than July 2006.
The IMA says the funds under management boost is largely due to the inclusion of additional institutional funds from January; without this the increase from June 2006 would be 14%.
Net retail sales for the period were £977m, of which £571m was invested in equities and £275m in balanced funds.
The sector with the largest net retail inflows was the Specialist sector at £305m, of which £94m was in property funds. The sector with the biggest outflows was the UK Corporate Bond sector with net outflows of £162m.
UK domiciled investment fund ISAs were £90m in July, 17% less than the previous month and 28% down on the corresponding month last year.
"Lower UK funds under management reflect the fall in the market in July,” IMA chief executive Richard Saunders says.
“Net retail sales continued at the healthy levels of the last two years spread across a number of asset classes.
“The dominance of property funds in retail sales was less pronounced than in recent months."
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