Fund manager AXA New Zealand says a fund in which trading has been partially frozen is in good health, and the move has been made as a precaution.
AXA has suspended wholesale trading for up to one year in its Mortgage Backed Bonds fund, which has $229 million invested in first-ranking mortgages over commercial properties.
It says concern about nervous investors has forced the move.
The freeze means institutional investors with more than $1 million in the fund cannot withdraw their money or invest more.
AXA New Zealand chief executive Ralph Stewart says the move will preserve the fund's liquidity if more small investors want to pull out.
"We believe perhaps the wholesale investors are in a good position to understand the value of the bonds, the quality of the assets, and the good position the fund's in.
"The retail investors may be responding to the difficult market conditions and the emotional drivers around how difficult things are now, so by leaving it open for them if they do require emergency funds or do need to leave the fund, they can still do that.
"Need to make the point though that if a large number of retail investors, more than normal, do decide to leave we may be forced to close the A class as well, but certainly hope that's not the case."
AXA says its wholesale and retail investors will continue to receive income distributions.
Goldman Sachs JBWere director of research Shamubeel Eaqub says the freeze of funds that are otherwise performing well, is a further sign of weakening investor sentiment.
The move follows AMP Capital's decision on Friday to freeze withdrawals from one of its unlisted funds.
AMP takes 'prudent' action
New Zealand's largest fund manager has suspended activity in AMP Capital NZ Property Fund after a rush of investors wanted to withdraw their money.
AMP Capital says $419 million is wrapped up in the freeze of the unlisted fund. No other AMP investment funds are affected.
The company says it can suspend redemptions, or investors pulling money out, for up to one year and it will lift the suspension as soon as market conditions improve.
AMP Capital's managing director Murray Gribben says the trust's actions are a prudent response to the market conditions. However, he insists the fund is safe and is good investment.
AMP Capital New Zealand is a subsidiary of the Australian financial services firm AMP.
Property and mortgage funds are haemorraging millions of dollars as investors withdraw their money.
The latest market report by Fund Source shows a total of $391 million flowed out of managed retail funds in the June quarter - $320 million of this was from the property and mortgage sectors.
The total outflow was double the amount in the same period last year.
At the same time, some property finance companies are hitting trouble - an estimated $3 billion of investors funds is frozen to date.