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Jittery investors bolted from mutual funds in November, pulling nearly $1.1-billion from an industry that could face one of its toughest RRSP seasons.

The net outflows were below a record $8.4-billion in October and $4.5-billion in September, according to preliminary figures released Tuesday by the Investment Funds Institute of Canada.

However, the industry still faces what “could be the worst RRSP season because of the volatile nature of the markets to the downside,” said independent fund analyst Peter Loach.

“Many have not experienced this kind of downturn in their life time.”

The S&P/TSX composite index has plunged 40 per cent so far this year, including a brutal 9-per -cent decline on Monday alone. By the end of November, the index was off 33 per cent after a 5-per-cent tumble in that month.

South of the border, the S&P 500 index has shed 42 per cent so far this year. By the end of last month, it was down 39 per cent for 11 months.

“I wouldn't be surprised if you see much higher than historical numbers going into guaranteed investment certificates, and even savings bonds – anything that is truly safe,” Mr. Loach said.

The RRSP season, which includes the first three months of the year and is the key selling period for the fund industry, suffered $2.3-billion in net redemptions in 1995. The industry also saw net outflows of $499-million in the 2003 season.

Dan Hallett, a Windsor, Ont.-based fund analyst, agrees the RRSP period could be the most depressing one for the industry since the early 1990s.

“There is a pretty good chance of seeing net redemptions during RRSP season,” Mr. Hallett said.

Unlike the last bear market from 2000 to 2002 after the technology bubble burst, the current downturn will make it tougher for the industry to attract investors, he said.

“Fund flows didn't suffer as much back then because there was no shortage of products that were doing well during that period even on the equity side” like value, dividend and income trust funds, he said.

“There were a lot of places to hide and a lot of positive things to talk about,' Mr. Hallett added. “Because the [recent] decline has been so broad-based, the sentiment is more negative, over all.”

Working in favour of the fund industry are the new tax-free savings accounts that officially begin Jan. 1 in which investors age 18 or older can invest $5,000 and avoid paying capital gains, he noted.

“It's another avenue that the industry can pursue to get people to invest money. Whether that will be enough to offset the negativity that investors are feeling as a result of the markets remains to be seen.”

CIBC Asset Management experienced net outflows of $391-million last month; BMO Financial Group, $222-million; and National Bank Securities, $157-million.

Among large Canadian public fund companies, IGM Financial Inc., which includes Investors Group and Mackenzie Financial, suffered $109-million in net redemptions; AGF Management Ltd., $124.5-million; and DundeeWealth Inc., which owns Dynamic Funds, $70-million.

CI Financial Income Fund posted $140-million in net sales, but that number includes segregated funds which are not counted by IFIC.

Invesco Trimark Ltd., formerly AIM Funds Management Inc., had $359-million in net outflows and Franklin Templeton Investments Corp., $102-million.

Frank Hracs, chief economist with Toronto-based Credo Consulting Inc., said that the net outflows were not as dramatic as in October, but he believes that “the level of confidence or fear still remains at October levels.

“It's still contingent on a month by month basis,” said Mr. Hracs. “If we continue to see the kind of equity market volatility that we have been getting – even as of Monday and if that persists for another couple of months – obviously that is going to significantly erode any RRSP demand potential.”