What happens to fund flows during periods of market volatility?
ICI research indicates that fund shareholders typically are experienced investors with long-term objectives. Mutual fund investors have in the past responded to significant equity market corrections with equanimity, as they have done over the past two years. Investors have not redeemed shares en masse and maintained a long-term perspective. However, during market downturns, mutual fund shareholders typically slow the rate at which they purchase new shares of mutual funds. The largest equity fund outflow in percentage terms since 1945 occurred during and immediately after the 1987 stock market break, yet amounted to only 3.2 percent of the total assets of stock funds. Negative net flows to bond funds have been associated with rising interest rates and negative or low returns on bond funds.
