Equity funds pulled in $23.3 billion in March, less than half of the $50 billion gained in January, according to Lipper of New York.

The $23.3 billion also represents about a 25% drop off from February’s tally. Investors reduced their net purchases of equity funds, but did add shorter-maturity bond funds to their holdings in the month.

"Choppy and slightly downtrending stock prices, the Spanish railway bombing, recurring bad news from Iraq, and concerns over rising interest rates combined to cool equity-fund buyers’ ardor for making current purchase decisions," according to Don Cassidy, a senior research analyst at Lipper.

Mixed and miscellaneous funds were the leaders among equity funds, grabbing $9 billion in the month, while U.S. diversified funds took in $6.5 billion.

Mixed equity funds and world equity funds drew in two-thirds of the inflows in this group, quite a departure from historical trends, according to Lipper. Typically, U.S. diversified equity funds lead the pack, however, inflows narrowed by 38% in this group. World equity funds narrowed by only 18%, while mixed equity funds grew by about 8%.

As for April, Cassidy said the month should prove to be even more challenging for equity funds. "Stocks spent most of the month clearly moving lower, with some 1%+ daily declines, and recently popular value and especially real estate funds dropped on fears of interest-rate and inflation rebounds," Cassidy noted. "Where investors would now put their money, and whether they would hold recently successful positions, will be quite interesting to observe."

Bond funds snared $5.2 billion in the month, after narrowly passing the zero mark in February. March marked the highest month since bond funds took in $6.5 billion in June 2003.

Short and intermediate bond funds represented the bulk of that inflow as they grabbed $5.7 billion. Long-term bonds lost $500 million in the month. Intermediate U.S. Treasury funds saw $1.6 in inflows, tops among bond fund categories.

Rounding out the flow groups, money market funds saw outflows of $13.5 billion, $10.5 billion in taxable and $3 billion in municipal funds. March represented the ninth consecutive month money market funds have had outflows and the 21 st time in the last 26 months the groups saw net money leave.

"It is somewhat sobering that an outflow of ‘only’ about $13.5 billion is not too negative in recent context," the Lipper report states, noting that March 2003 saw $32 billion in outflows. The $13.5 billion represents about two-thirds of the average monthly outflow seen in 2003.

As for the industry overall, the first quarter saw net inflows of about $50 billion, the best of the last five quarters. Equity saw positive flows of about $100 billion, the best the group has seen since the first quarter of 2000.

Investors have come back after the bear market, Lipper says, adding that April should prove a good litmus test of investor resolve under short-term stress.

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