The economy may still be in recession and the country burdened with debt, but amid the doom and gloom there’s one surprisingly cheerful piece of news. Private investors appear, once again, to be feeling confident enough to start buying funds in a big way.

The latest figures from the Investment Management Association, the industry trade body, show that in September private investors bought a net £2.7 billion of funds. This is the sixth consecutive month in which net retail purchases have topped £2 billion. It also brings the net purchases for the first nine months of the year to £18.7 billion - already more than the previous record total for a full year, which was in 2000.

Although a large chunk of those fund purchases was bonds rather than equities, equities overtook bonds in September, with investors ploughing a net £1 billion into share-based funds.

However some experts, while welcoming the latest trend as encouraging, have issued a warning that the statistics should be interpreted with care.

Brian Dennehy, of Dennehy Weller & Co, an independent financial adviser, says: “Comparisons with what was happening in 2000 are misleading. I don’t believe for a moment that the man in the street is investing in equities in the way that he was back in 2000. The volume of money and the sheer numbers of phone calls from clients we were receiving in 2000 was way in excess of what is happening today.

“I think that a lot of the money currently going into funds is displacement money. In other words where banks and stockbrokers would previously build share portfolios for their discretionary clients, they are now channelling that money into funds.”

Although Mr Dennehy’s view, if correct, puts something of a dampener on the apparently startling inflows into funds, it does suggest there is less danger of a ‘bubble’ building up in equity funds.

As Mr Dennehy says: “Traditionally, large inflows into the stock market are a sign that it could be close to a peak. That was certainly what happened in 2000 but, as I have said, I don’t think this is a repeat of 2000. If I really thought that private investors were piling into the stock market in record numbers I would be heading for the exit.”

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