Based on the convex relationship between fund performance and cash flows, many studies show that loser funds increase their risk to improve performance. However, in a recent paper, Huang, Sialm, and Zhang (2011) show the performance is particularly severe for funds that increase their risk. This paper examines the relationship between risk-increase and cash flows. Using fund net flows, inflows, and outflows, this study explains the reason why fund managers increase risk. Risk-increase affect inflows and outflows but not net flows because the net effects of inflows and outflows are mixed and blurred. Therefore, a fund’s assets under management do not change as risk increases. When performance is better (the best), risk-increase has a positive effect on inflows, which is related to idiosyncratic risk. When performance is worse (the worst), riskincrease has a negative effect on outflows, which is related to systematic risk. The results suggest that risk-increase may lead to an agency problem between fund managers and investors.