Ten years ago unit trusts had R78,4bn in assets in 156 funds. Now gross sales are almost double that every quarter, and total assets have increased to R658bn - spread across no fewer than 831 funds.

The nature of the industry has also changed: the big players used to be the large life offices such as Old Mutual, Sanlam and Liberty (which traded in unit trusts as Guardbank). Syfrets was the first specialist business, established in the mid-1980s.

It was only in October 1998 that Allan Gray entered the unit trust industry with its Equity Fund. With hindsight, it would have been a great decision to invest in that fund right from the beginning. There were a lot of cheap shares, as the "new economy" was all the rage - resources was considered to be a dying sector.

But Allan Gray saw great opportunities in resources, as well as in other "old economy" sectors such as construction. It outperformed the rest of the general equity sector by a substantial margin. In those days, however, because Allan Gray did not have a brand and did not have staff experienced in dealing with the retail market, it remained a small fund of less than R1bn.

Allan Gray has changed its business model and built a large retail engine. From a staff of about 40, when it was purely a manager of third-party pension funds, it now employs more than 600 people, servicing its linked product business as well as its unit trusts, retirement annuity, endowment and segregated investments. It has three of the top 10 largest unit trusts in SA - Allan Gray Balanced (R25,5bn), Stable (R21,2bn) and Equity (R17,9bn).

The secret to building a successful unit trust business is to offer more than plain vanilla unit trusts. Allan Gray Unit Trusts MD Johan de Lange says that contractual flows (from people investing regularly for retirement) are stable, but flows of discretionary money are drying up as people come under pressure in the current economy.

Pieter Koekemoer, head of Coronation unit trusts, says that last year people could expect to get a higher yield than cash from unit trusts such as flexible income funds, but this is no longer the case. These funds also invest in bonds, preference shares and property to sweeten yields.

Yet these funds are currently offering about 5% below fixed deposits, with a couple of exceptions such as the RMB Income Plus Fund and the Nedgroup Investments Flexible Income.

Even money market funds, which should be safe as houses, caused a scare when it turned out that the Absa Money Market Fund had invested in quite a risky option, which brought down its yield materially. It is still the largest fund in the industry, with R52,9bn under management, but it had outflows of R13bn.

Koekemoer says he would not be surprised to see outflows from all funds, including money funds, in the future. "People only invest in a fixed interest unit trust when they are convinced that they can get a better yield than for a bank deposit. There's no guaranteed yield on a unit trust, after all."

You might have expected a R6,5bn outflow from equity funds, in view of the large capital losses in January. What is more surprising are the outflows from more conservative sectors such as targeted return funds (R265m), low equity (R124m) and income funds (R177m).

Prudential Unit Trusts MD John Kinsley says many investors have seen substantially better numbers from targeted return funds than their benchmarks over the past three years, yet they have complained after just one negative month.

"These funds, such as Prudential Inflation Plus, are not doing their job if they simply go up and down with the equity market," says Kinsley. "They need to invest some of their money into growth assets to outperform inflation by a comfortable margin over time." Nonetheless, people are moving from these sectors to money market funds or else straight to the bank.

The other surprise has been that, in spite of the weaker rand, there has been limited interest in foreign funds.

A lot of decisions are made on behalf of the public by financial advisers, who in turn rely on linked product companies to guide them into the right funds.

Certainly funds are getting bigger, such as Investec Opportunity, Value and Equity funds which are now all larger than R5bn. But the number of funds continues to grow.

Numbers were boosted by the launch of a wide number of funds for Discovery as part of its Discovery Invest platform; a huge range of building blocks from Advantage; and a new range from the Professional Provident Society, which is moving into investment products.

Unit trusts are still associated primarily with the top end of the market, and lump sums account for the vast majority of inflows.

Di Turpin, CEO of the Association of Collective Investments, the industry representative body, says there is potential for substantial growth in regular contributions for retirement savings - in which the more transparent and flexible nature of unit trusts makes them attractive both to the self-employed and to pension funds that offer individual investment choice.

Unit trusts late last year introduced their own initiative to bring greater access to their products in the mass market. Their Fundisa initiative complements the Mzansi bank accounts and the Zimele life products.

The Fundisa Fund will be a very low-risk product, investing in a range of low-risk income funds, money market instruments and short-term government bonds. But it has the great advantage that for every R100 invested, the education department and the unit trust industry will contribute R25 into a special account.

The funds in the special account can only be used for education, and they are paid directly to a registered institution through the National Student Financial Aid Scheme.