Why mutual funds data shows risky investor behaviour

There is a lot of money flowing into small and mid-cap mutual funds. Of the total net inflows, a sizeable chunk of the money has reached sectoral, mid-cap, and small-cap funds. The latest monthly inflow data from the Association of Mutual Funds in India shows that the risk appetite of individual investors is rising as more money flows into funds with a mandate to invest in specific sectors or small-cap funds. These inflows powered a 35-40% rally in small and mid-cap shares in India in 2023 so far. That is reflected in the performance of the stock indices that track these shares. Indian large-cap shares have only increased by 8-10% in 2023.

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