Investors poured £1.4 billion into equity funds last month, the largest inflows recorded since April 2011.
These sales mean that total cash under management in open ended funds now equals £744 billion – record levels, according to the Investment Management Association.
July’s activity was a significant increase on the same month previous year which saw £966 million in net retail sales - less than half.
Investors also took the opportunity to utilise their ISA allowance last month, with net retail sales of £125 million – compared to outflows of £25 million the previous July.
Market conditions have vastly improved over the past 12 months, with the FTSE 100 up 12% in that time, from 5,744 to 6,468 today.
There have been strong growth figures from the US and much of the uncertainty surrounding the eurozone has been quashed since last year.
These positive markers have meant that investor confidence has improved.
Daniel Godfrey, IMA chief executive, said: "We saw strong net retail sales in July, surpassing £2 billion for the third time this year, with the largest part of this net investment going into equity funds. Global equity funds were the best-selling, with equity funds invested in the UK, North America and Europe also doing well."
The most popular asset class was equities, with equity funds seeing net retail sales of £1.4 billion compared to sales of just £77 million for bond funds.
Property funds also saw a surge in interest – with sales of £140 million, which has not been seen since July 2010. Commercial property funds have piqued the interest of income seekers, but advisers recently warned that the asset class can be risky.
Regionally, global funds proved most popular, followed by UK equity funds and then North American equity funds. This propensity to favour developed economies shows that investors are cautious of the current volatility in Asian stock markets.
UK equity funds saw sales of £392 million, compared to Asian equity funds which saw sales of just £16 million.