Equity Mutual Fund Purchases Slowing

NEW YORK — Purchases of U.S. equity mutual funds are slowing from the record pace of the first four months of 1996, as fewer investors put money in retirement accounts after the April 15 tax deadline, fund companies said Monday.

“We’re expecting fund sales to be down 10% to 15% this month from April’s level,” said Tim Pitts, executive vice president at OppenheimerFunds Inc. in New York.

“Fund inflows will be lower in May if they follow well-established historical trends,” said Brian Mattes, a spokesman for Vanguard Group.

Purchases almost always get a lift in the first 3 1/2 months of the year from tax steps taken by individual investors and companies before April 15. Individuals and companies by law must fund individual retirement accounts by the time they file their tax returns. No contributions can be made to retirement accounts for the prior year after April 15.

Mutual fund investments in retirement accounts have helped push this year’s stock fund purchases to lofty levels, companies said. The record-setting pace has in turn helped fuel this year’s market rally.

Some Wall Street analysts are warning that a reduction in new fund share purchases could result in a sudden market drop.

Byron Wien, chief investment strategist at Morgan Stanley & Co., told clients last week that the Dow Jones industrial average may be headed for a 1,000-point decline. A slowdown in stock fund purchases would accelerate the market slump, Wien said.

If Wien’s right, the stock market is facing some rough days ahead. Stock fund purchases are almost always lower in May than April, according to the Investment Company Institute, the mutual fund industry’s trade group.

Over the last six years, stock fund purchases were 19.4% lower in May than April on average, according to a report from the ICI. In 1995, net purchases of stock funds totaled $10.18 billion in April and then declined 14% in May to $8.76 billion.

The ICI said it expects to release its estimate for last month’s mutual fund purchases later this week.

Stock fund purchases were a record $66.9 billion in the first three months of 1996, or three times more than was invested in the first quarter of last year, the ICI said.

Fund companies, including Vanguard, T. Rowe Price Associates Inc., Massachusetts Financial Services Co., OppenheimerFunds, and Scudder, Stevens & Clark Inc., reported higher purchases in April than March, in some cases better than any previous month.

“In the first four months of the year, money flows into my office like crazy because everybody’s funding their pension plans, profit-sharing plans, IRAs and every other kind of retirement plan they can,” said Montague “Cosmo” Boyd, a retirement plan consultant at Robinson-Humphrey Co. in Marietta, Ga. “After April 15, all we see are the ongoing funding of 401(k) plans.

“The cumulative flow of assets during the last eight months of the year isn’t as great as the first four months,” Boyd said.

Fidelity Investments, the nation’s No. 1 fund group, has already indicated that stock fund purchases are slowing. The company said equity fund purchases were an estimated $2.3 billion in April, down from $3.1 billion in March.