Chinese mainland mutual funds posted a combined investment loss of 413.88 billion yuan (US$61.8 billion) in the second quarter due to a sharp drop in the stock market, industry data showed yesterday.

Stock investment by 362 domestic funds accounted for 21.6 percent of the market capitalization of yuan-backed A-shares as of June 30, down 1.6 percentage points from a quarter before, according to TX Investment Consulting Co.

The stock exposure by equity-focused funds reached 70.54 percent by the end of the second quarter, down 4.14 percentage points from March 31, the China Securities Journal reported, citing data from TX.

The funds' net redemption, or the number of funds redeemed less those purchased, reached 54 billion units during the second quarter, up from 17 billion units in the first quarter, according to industry data.

"Funds are facing the hardest time in recent years," said Wu Zhiguo, a Guohai Securities Co analyst. "It's hard for them to retain investors who lack confidence and tend to take quick profits."

The benchmark Shanghai Composite Index lost 31 percent in the second quarter after dropping 17 percent in the first three months of this year on worries over slower corporate earnings growth due to possible further tightening.

Mutual funds cut positions on the financial sector but bought heavily into the new energy and mining sectors in the second quarter to counter inflation risks, China Minzu Securities Co said in a note yesterday.

"We don't believe funds have already shifted to the defensive side," said Liu Jiazhang, an analyst with Minzu.

"They actively sought upstream chips that could help battle inflation and perform well. They are still holding the power in moving the market," he added.