Canadian investors withdrew billions of dollars from mutual funds in September, according to the latest data from the Investment Funds Institute of Canada.

Total mutual fund net redemptions were $4.5 billion last month, dropping from just under $800 million in net sales for August, and down from the almost $1 billion in net sales for September 2007.

Money market funds contributed $2.5 billion of net redemptions in September, while long-term fund redemptions were $2 billion.

Money market funds had $944.1 million in net sales in August and $328 million in net sales last September, whereas long-term funds recorded $144.5 million in net redemptions in August and $665.8 million in net
sales in September 2007.

Not only were sales very weak in the month, but industry assets under management also declined to $633.6 billion in September, down 8.9% from August and 9.7% from September 2007.

Long-term fund assets totaled $563 billion at the end of the month, down 9.6% from August and down 13.7% from September 2007.

Year-to-date net sales are now $10.6 billion for the industry, down from $27.8 billion at this point last year. Total net sales over the past 12 months were $17.7 billion, down from $35.3 billion over the previous 12 months. Long-term funds have net redemptions of $3.2 billion year-to-date compared with $26.5 billion in net sales at this point last year, whereas money market funds have year-to-date inflows of $13.7 billion.

Last month, IFIC said rising relative rates of return for substitute short-term investments have attracted money away from money market funds. “In addition, a lack of delineation by investors between troubled money market funds domiciled in the United States and Canadian money market funds has likely contributed to the size of the outflows this month,” IFIC suggested.

Equity fund redemptions rose to $992 in September from net redemptions of $764.3 million in August and balanced funds had net redemptions of $862.3 million over the same period, down from $504.9 million net sales in August. Equity fund redemptions year-to-date are now $8.7 billion, compared with net sales of $5.8 billion at this point last year.

Despite the monthly declines across all asset classes, some categories did attract net new flows in September. U.S. equity funds attracted $66.5 million in net sales for the month, up from net redemptions of $29.7 million in August. Also, sector equity funds had net sales of $19.9 million in September, up from $50.4 million in net redemptions.

Manulife Investments led the way with $139.9 million in monthly net sales, followed by Fidelity Investments Canada and Dynamic Funds. RBC and TD Asset Management had the largest redemptions, led by their money market funds.

“There is no doubt that September has been a difficult month for investors of all stripes.” said Pat Dunwoody, IFIC’s vice president, member services and communications. “We welcome recent actions taken by governments to support the global financial system and we expect that these actions will help restore some order to markets.”