Understanding Fund Flows: A Key Indicator for Investors

Fund flow is an expression for the amount of money used to purchase securities in a specific area of the market each month. Fund flow is a net expression of this interest, adjusted to account for any investors that are leaving the market at the same time. Analysts use this measurement to determine the popular areas of investing in a given period of time.

Fund Flow Example

Last month, there was a very high fund flow into the bond market. This could show an analyst that investors are looking for stable, fixed-income opportunities as opposed to high risk securities. As a result, fund managers may begin to advertise bond funds to prospective investors. 

Fund Flow and Price

If a specific area of the market, or even a specific mutual fund, has high fund flow for an ongoing period of time, the price of that area of interest will rise. This is a simple application of the laws of demand. As more investors want to place their money into Treasury bonds, the higher bond prices will go, or the more bond options will be offered. Fund flow, then, is used to price and produce varying securities as well as advertise those securities for sale.