The stock market lost the battle for Individual Savings Account investors last month, with equity Isa sales half their level of the previous year.

While cash Isas have been buoyant, the new flexibility allowing cash Isas to be transferred into equity versions has failed to counter the fear factor among private investors.

Net sales of equity Isas were £532m between March 1 and the end of the tax year on April 5, according to the Investment Management Association. That compares with £957m in the same period in 2006. In 2000, shortly after Isas were introduced at the height of the dot.com boom, sales were £3.3bn.

The 2007/08 tax year saw net Isa sales of £1.3bn, compared to £2.5bn the previous year. The UK funds industry has lost 2% of its funds over the last month, the latest figures reveal. The drop from around £441bn in February to £432.7bn in March represents a 4% fall on the same period of 2007.

The most popular asset class continued to be bonds, with £315m of inflows, followed by £65m being invested in balanced products.

The IMA's chief executive, Richard Saunders, said: "The Isa season this year was modest, though over £250m inflows in the last five days of the tax year pushed it up to respectable levels.

"In current uncertain market conditions it is encouraging to see two months of positive net retail and Isa sales, a significant improvement on the previous three months."

But Rebecca O'Keeffe, head of fund management at the Interactive Investor trading platform for private investors, commented: "While most people predicted a fall in Isa sales in view of market conditions, even the most pessimistic will have been pretty shocked by the extent of the fall."

Ben Willis, of Whitechurch Securities, described the figures as "pretty disastrous".