March's rebound in mutual fund assets masks bad news for fund companies: Investors are entrusting them with less of their money.

Assets under management increased in March by 2.6%, to $5.769 trillion, according to the Investment Company Institute, the industry's trade group. That follows a painful February, when assets fell 1.6%.

But the recovery in March depended more heavily than it has in the past on investment performance-rather than on new money flowing into mutual funds.

In other words, fund companies are relying more now on rising markets to keep assets-and the profits they produce-growing.

According to Financial Research Corp. of Boston, net flows into stock and bond mutual funds in March were $13.5 billion, less than half the total a year earlier. (Net flow is the amount of new money investors put into mutual funds minus the amount they cash out.)

This pattern has played out throughout the first quarter: Net flows were $42 billion through March 31, compared with $87 billion a year earlier, according to Financial Research.

The lighter flows left the companies' assets vulnerable to a sliding market in February, and all the big fund companies suffered.

The Standard & Poor's 500 index fell 3.1% in the month as the high- flying technology sector stalled. The index rebounded in March, rising 4% and helping to lift the fund industry's assets under management.

Mutual fund companies say they are not concerned by the month-to-month rises and dips in total assets.

"It's a fact that there is month-to-month volatility in assets," said a spokesman for Vanguard Group in Malvern, Pa. "It's to be expected."

A Putnam Investments spokesman said the company is not alarmed by either asset volatility or the industrywide trend of decreased net flows.

The spokesman would not disclose Putnam's net flows, but according to Financial Research, the company's net flows of long-term funds fell to $1.7 billion in the first quarter, from $5.2 billion a year earlier.

Industry observers said mutual fund companies are showing signs of concern over asset volatility and net flows.

Months like February are "bell ringers, eye-openers for the industry," said Geoffrey Bobroff, a mutual fund consultant in East Greenwich, R.I.

They are the reason that some fund companies are doing advertising budgets quarterly rather than annually and finding other ways to make their budgets more flexible, Mr. Bobroff said.

The uncertainty is also affecting hiring decisions, including whether to hire experienced portfolio managers or economize by cultivating younger talent, he said.

"Overall assets are up, but net flows are not very good," Mr. Bobroff said. "Will the industry pull in its horns to deal with that?"

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