UK savers invested £1.3bn into funds in July, the second consecutive month of inflows of over £1bn, data from the Investment Association (IA) has revealed.

While ‘cautious optimism’ persisted amongst investors, higher flows to fixed income funds suggested that investors remained risk conscious.

Index trackers saw net retail sales of £3.4bn during the month, the second highest monthly inflow to trackers on record, alongside a £2.1bn outflow from actively managed funds.

Inflows to index trackers were highest among equity funds at £2.3bn, as investors opted for low-cost access to equity markets, while fixed income index trackers recorded inflows of £895m.

Fixed income funds returned to inflow with net retail sales of £444m, the IA found, following two months of outflows of £318m and £1.2bn in May and June respectively.

Investors were found to favour corporate and government debt in July, with £404m to corporate bond funds and £223m to government bond funds.

Investors pulled £113m from equity funds in July, following £1.2 billion of inflow in June.

Inflow to European equities fell from £884m in June to £117m in July, while North American equities experienced outflows for the second month in a row.

Although UK equity outflows remained high at £919m in July, this was the lowest outflow figure in 2024 to date.

Money market funds were the top selling asset class in July with inflows of £844m, although this was down from £1.2bn in June.

Short Term Money Market was the top-selling IA sector for the third consecutive month, seeing inflows of £806m building on £1.5bn in June.

Outflows on responsible investment funds increased slightly, rising from £343m in June to £368m in July.

Global trackers saw high inflows of £851m and, although there was an outflow from North American equities overall in July (£179m), inflows to trackers reached £465m.

Furthermore, despite outflows from the UK All Companies sector, there was a second month of inflows to UK All Companies trackers (£83m), with savers “dipping a toe back into UK equities” through low-cost indexing options.

“July’s UK general election result has created a measure of political certainty, which is helping investor confidence, and the UK government's commitment to driving economic growth as its core priority, while maintaining fiscal responsibility is a positive signal for markets,” said IA director, market insight & fund sectors, Miranda Seath.

“The impact of the incremental Bank of England rate cut to 5.0 per cent in August, although not captured in July’s fund flow data, should also help to boost investor confidence as the outlook for inflation has improved and we have reached the peak of the rate cycle.

“To really drive flows back into UK equities however, investors need to see the UK economy deliver growth. At the same time, there is a shifting picture across Europe, the US and Japan: The world’s major economies are not quite out of the woods yet and recent market corrections in the US and Japan show that there is still room for volatility.

“This may make UK equities relatively more attractive compared with peers. While we haven’t seen a dramatic shift in investor behaviour following the election, we have seen inflows into UK equity trackers – this could be an early sign that investor sentiment is improving.”

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