Investors continued to move cash out of tax-exempt mutual funds in March, redeeming more than $4 billion of shares, an 81.4% increase over March 1993, according to the Investment Company Institute.

During the first quarter, redemptions increased 64.8% to $10.49 billion, compared with $6.36 billion in the first quarter of 1993. In March, investors redeemed a total of $4.43 billion of long-term municipal fund shares.

Net sales, or total sales minus redemptions, fell by 40.2% to $6.63 billion.

Despite the strong wave of redemptions, total assets of municipal funds grew modestly. At the end of March, long-term municipal funds had assets of $241.4 billion, a 12.8% increase from the total at the end of March 1993. Money market funds saw assets step up by 15% to $114.86 billion.

Investors taking profits on a long bull run in the bond market may have been the cause of some of last month's redemptions, said John Collins, an ICI spokesman.

"In the bond mutual funds, the profits originating out of the declines in interest rates are perceived to be coming to an end," Collins said.

"They provided a real clean opportunity for profit-taking," he said.

Bond funds also had negative cash flows in March, Collins said, signaling that many investors preferred to take their money rather than shift it into another similar fund. Net new cash flow, which is net new sales combined with net exchanges, declined by $1.15 billion for municipal funds during the month. Net new cash flow also declined in February, the first time since at least January 1993.

Attractive spreads between tax-exempt money market funds and intermediate funds enticed investors to channel cash into the intermediate sector in 1993, said Brian Torpey, an analyst with Municipal Market Data.

However, investors turned cautious and pulled in their horns after the Federal Reserve tightened monetary policy on Feb. 4 Market gyrations that followed the Fed move prompted investors to begin liquidating long-term holdings. Some shifted the cash back into the short end of the market, Torpey said.

In February investors pulled more than $3 billion out of tax-exempt funds, a 57.8% increase over the year-ago period, the ICI reported.

"I think they got out because of the volatility," Torpey said. "You can see the money funds starting to pick up in March."

Overall, total sales of stock and bond mutual funds rose in March, to $53.4 billion, the ICI said. This compares with total sales of $48.1 billion in February and $42.9 billion in March 1993.

Total sales include the purchase of new shares and reinvested dividends. They do not include redemptions or exchanges from one fund to another in the same fund group.

Meanwhile, total redemptions of mutual funds rose to $39.8 billion in March, compared with $26.2 billion in February and $19.4 billion in March of 1993.

Mutual funds had assets of $2.08 trillion as of March 30, slightly less than the $2.14 trillion in February. At the end of March 1993, total assets were $1.77 trillion.

The ICI culled its statistics from 266 national municipal funds, 561 single-state funds, and 302 tax-exempt money market funds.

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