Korea’s fund market suffered a setback last year, with its aggregate amount of money parked for stock and bond investment shrinking amid heightened global growth risks and wobbly financial markets, data showed Thursday.

According to the data from the Korea Financial Investment Association, the total amount under management of local funds stood at 298.5 trillion won ($257.4 billion) as of the end of December, down 6.3 percent from 318.8 trillion won a year earlier.

The latest figure marked the first time that the local fund market has dipped below the 300 trillion won mark since 2008.

Funds investing largely in bonds and money market funds are being shunned by investors as their returns are at a record low due to low interest rates. Institutional investors, in particular, manage their money instead of putting it in third-party funds at a time when the expected returns remain low.

MMF is also falling behind other investment vehicles with better short-term returns, discouraging investors from the fund market.

The local fund market surpassed the 300 trillion won mark, for the first time on Dec. 12, 2007 when the KOPSI broke through the 2,000-point level. By the end of 2007, the fund market’s total size was estimated at 320 trillion won, heralding a new era of fund-oriented investment boom.

But the red-hot popularity of funds was short-lived. The collapse of Lehman Brothers and the subsequent fallout that sent ripples throughout the global financial market quickly eroded the local fund market, cutting its size to 298.3 trillion won at the end of 2008.

In 2009, the market staged a recovery and the amount of money under funds’ management rose to 319 trillion won, with local funds investing in stocks and bonds leading the way.

After a lackluster performance in 2010, the market swallowed another year of negative growth due to the eurozone fiscal crisis and the slowing global economy.

Financial data firm FnGuide showed that funds which invest mainly in local stocks and manage more than 1 billion won saw their yield turn to minus 12.08 percent last year. Funds based on foreign stocks came out with a worse performance, with their average loss reaching 21.7 percent last year, hurt by the sharply increased volatility on the global financial market.

The outlook remains mixed. The total amount managed by funds edged up to 307.8 trillion won as of Jan. 9, largely due to the inflow of some of the MMF capital that was withdrawn at the end of last year.

By Yang Sung-jin (insight@heraldcorp.com)