Equity funds took in a net $21 billion in July, Lipper reported Wednesday. It was among the top 10 best months for equity funds in the past five years, Lipper said.

With bond prices falling and yields rising, however, investors took a net $8.8 billion out of bond funds, and they withdrew $2.1 billion from money market funds.

"It appears that the lessons about asset allocation have been quickly forgotten with the first palatable drop in bond prices," said Lipper Senior Research Analyst Don Cassidy.

Among all types of mutual funds, the industry had net inflows of $10.1 billion during the month.

Lipper concluded that with the nearly uninterrupted rally in the stock market since March and strong inflows in recent months, "the industry is undoubtedly breathing a sigh of collective relief." However, the recent strong rally is unlikely to continue, and when and if that happens, the rush to equity funds is likely to abate somewhat, Lipper said. "It can still be said that the industry has some educating to do in terms of investors’ timing habits and the virtues of asset allocation and longer-term perspective."

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