Retail investors pulled £137m out of funds in October, down from £1.5bn in September and £3.9bn during the same month last year.
Equity funds and fixed income funds saw outflows of £376m and £429m, respectively, while mixed asset funds posted outflows of £3m, following September's £781m inflows.
However, the bulk of outflows were offset by £938m of inflows into money market funds and £33m into property funds, the IA found.
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Tracker funds suffered their worst month on record in October, with net retail outflows of £331m, while UK retail investors redeemed £530m from their responsible investment fund holdings.
The worst-selling Investment Association sector over the month was UK All Companies, which experienced outflows of £939m, as Short Term Money Market topped the sales charts with inflows of £650m.
Volatility Managed became the second best-selling sector with net retail sales of £268m, followed by £229m for the Japan sector, £221m for the Specialist Bond sector and £206m for the UK Gilts sector.
Chris Cummings, CEO of the Investment Association, said the environment remained "challenging" for investors despite the slowdown in outflows.
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"Short Term Money Market was the best-selling sector, with investors parking their savings and taking a ‘wait-and-see' approach as the cost-of-living crisis continues the impact the ability to invest," he said.
"We may see savers re-allocate their funds once market conditions have calmed down. However, in the meantime, investors are gravitating towards safer asset classes, and UK gilts and other government bond funds were selling well in October."
UK equity funds continued to experience the heaviest outflows of any region, with investors redeeming £1.3bn over the month, while global funds and Europe funds shed £989m and £527m, respectively.
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When it comes to gross retail sales by distribution channel, most sales came from UK intermediaries including IFAs, totalling £19.2bn and representing a market share of 52.1%.
Gross retail sales through UK funds platforms totalled £12.1bn and represented a market share of 32.7%, while sales through discretionary managers amounted for £1.8bn with a market share of 4.8%.
Direct gross retail sales totalled £836m with a market share of 2.3%, while execution only intermediaries totalled £194m in gross retail sales and accounted for just 0.5% of the market.