Mutual funds' value declined in July in step with the U.S. stock market, while municipal bond funds gained as investors turned conservative.

According to findings released Wednesday by the Investment Company Institute of Washington, stock funds' value fell to $4.2 trillion in July, from $4.3 trillion in June. Municipal bond funds grew by $850.2 million, to $267.8 billion, partially offsetting outflows of $1.17 billion in June.

The move into municipal bond funds reflects high-net-worth investors' desire to rebalance their portfolios and a flight to safety in response to turbulence in growth and technology funds, said Bruce Brewington, an analyst at Putnam Lovell Securities in San Francisco.

July showed the first net gain in municipal bond funds in more than a year. The sector had hit bottom in December, when investors took $7.2 billion out of municipal bond funds, Mr. Brewington said.

Investors' confidence in other bond funds was not as firm. Taxable bond mutual funds, which had gained ground June, lost $1.58 billion in July.

Assets declined because of negative market performance of the underlying securities, rather than because of investors' withdrawing money, Mr. Brewington said. The drop in stock fund value points to volatility in aggressive growth stocks, he added, rather than a lack of investor confidence in equities in general.

For technology funds, which attracted $4 billion of new money in the first two months of the year and $1 billion in June, only $75 million trickled in in July. Investors nearly abandoned technology funds in July, Mr. Brewington said, but the sector could experience a rebound in the fall, as some analysts are expecting a spurt in stock markets after Labor Day.

The Investment Company Institute numbers suggest that customers lost some of their appetite for extreme risk over the summer. While money still chased aggressive growth funds in July to the tune of $6.60 billion, that is down from the $9.70 billion investors put into such funds in June.

Investors were drawn more to growth funds, which had inflows of $10.29 billion during June, and international equity funds, which drew $1.53 billion in new money, up from $74.3 million in June.

Fund salespeople expect that figures will show that August sales are solid, where interest in international equity stocks remained weak, said Mr. Brewington, citing conversations with fund managers at T. Rowe Price, among others.

Figures released by Financial Research Corp. tell a similar story. The Boston company found that domestic equity funds inflows fell to $8.9 billion in July, from $16 billion in June.

Vanguard's family of funds reclaimed its status as the best-selling fund group in July, with inflows of $1.9 billion, according to Financial Research. Vanguard displaced Janus in that category; the latter had sales of $1.16 billion.

The Pimco Total Return Fund, a bond fund, was the top-selling mutual fund in July, with net inflows of $811 million. The other top sellers were growth funds, such as Los Angeles-based American Fund Distributors' Growth Fund of America, which brought in $715 million, and MFS Investment Management's Massachusetts Investors Growth Stock Fund, which gained $500 million of new assets.

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