Last year saw net retail fund outflows of £1.6bn, compared to much larger outflows of £26.9bn and £24.3bn in 2022 and 2023, according to data from the Investment Association.

Funds under management ended the year at £1,509bn in 2024, a rise of 6% from the end of 2023.

The Investment Association said its data suggested, “a cautious return to investor optimism for 2025”, helped by falling inflation, rate cuts by central banks and stronger equity market performance, particularly in the US.

Miranda Seath, director of market insight and fund sectors at the Investment Association said: “While returns may be choppier across equity markets around the world, it could bring some interesting opportunities for investment managers to drive performance. With such distinct short and long-term structural changes witnessed across global markets in recent months, what will remain true in 2025 is that markets won’t stand still.

“The key message therefore to investors is to stay invested through periods of volatility and to think long-term.”

Index tracking funds saw record inflows of £28bn, exceeding the previous record inflows of £18.4bn in 2020. Index tracking funds now account for around a quarter of funds under management.

Investors also continued to back bonds in 2024.

Fixed income funds saw inflows accelerate to £32.bn (from £720m in 2023). Investors increasingly opted for corporate bond funds, with net inflows of £4.6bn following flat sales in 2023.

Equity funds continued to see outflows through 2024, though at £5.7bn outflows were significantly reduced from the £22.4bn outflow in 2023. The overall outflow was driven by active equity funds. UK equity funds outflows weighed on equity net sales with £13.1bn in outflows in 2024.

Mixed asset funds saw outflows of £2.7bn, only slightly easing from the £4bn of outflows in 2023. The Mixed Investment 20-60% Shares sector continued to drive outflows, with investors taking out £3.8bn.

Responsible investment funds also continued to struggle, seeing significant outflows continue through 2024, with net withdrawals of £4.7bn, up from £3.0bn in 2023.