Investors have been pouring hundreds of millions into investment products in an attempt to get a high rate of return on their money, according to a new survey by the Irish Association of Investment Managers.

Almost £1 billion was invested in these funds by Irish individuals in 1998, up over 40 per cent on the previous year and they now account for about 20 per cent of the total savings market, including deposits and post office accounts.

The growth has been driven by rising disposable income, as well as falling interest rates. According to Mr Pramit Ghose, IAIM's retail chairman, they are set to remain the fastest growing vehicle for many personal investors.

He added that investment funds offer advantages over direct equity investment. These include diversification and no individual stamp duty or commissions, only one tax payment, flexibility and strong returns.

However, critics point to the expense of buying these funds, given the 5 per cent charge frequently levied in the form of a bid/offer spread. Mr Ghose argued that this can be frequently negotiated down to about 1 or 2 per cent.

The funds surveyed range from insurance company with profit bonds, which are in competition with post office savings accounts, to the most exotic Latin America funds investing in stocks and shares.

However, the vast bulk of the growth in the market has been in managed funds which invest in a range of vehicles, according to Mr Gavin Cauldwell, chairman of IAIM.

Last year the fastest growing section was the special investment accounts, which took in some £168 million, a 313 per cent increase on 1997. However this is likely to slow this year, as the accounts lose their special tax treatment and a more even playing field ensues.

The survey also found that more money poured into tracker bonds last year - at £219 million. However they still only account for 7.5 per cent of the market.

Most investment in these vehicles is still lump sum investments, with the average ranging from about £15,000 to £20,000, although this conceals some very wide variations. IAIM is predicting that the market will continue to grow rapidly as investors pull their money out of very low return deposit accounts. It is predicting that some £1.2 billion will flow in during 1999 as more specialised funds appear.

Over time, Mr Cauldwell said, he expects the Irish market to move in the direction of the US mutual fund market, which is bigger than the bank deposit market and is even used for daily cash flow requirements.

But for now in Ireland, Mr Cauldwell stressed that the funds are only for those seeking to invest long term, preferably at least five years on.

According to Mr David Conroy, head of personal investments at Ulster Bank, its recent introduction of a two-year Euro stock 50 tracker bond was successful beyond all expectations and it will be introducing another version a couple of weeks.

The two-year time period was probably the most attractive feature, he added.